What’s the Deal with Prop 19? by Ryan Lockhart
What is Prop 19? As most estate planners can attest, California Proposition 19, or Prop 19, caused a whirlwind of calls and emails from worried property owners in the beginning of the year. Prop 19 passed in the November 2020 general election. Prop 19 did two things: (1) allowed for older and/or disabled homeowners to transfer their property tax basis to a new property within the state; and (2) substantially changed the rules for intergenerational property transfers. Along with Prop 19 came controversy, almost exclusively reserved for the second part of Prop 19, intergenerational transfers. 14
SEPTEMBER 2021
How Did Prop 19 Change Intergenerational Transfers?
Prior to Prop 19, under Prop 58, parents could transfer their primary residence to their children and exclude the transfer from a property tax reassessment.1 Parents could also transfer additional properties to the children and exclude them from reassessment, with caps on the value of the excluded transfers.2 Any transfers that occurred prior to Prop 19, effective February 16, 2021,3 fall under the Prop 58 rules. Prop 19 drastically changed the rules for transfers from parents to children. Parents can no longer exclude from reassessment transfers of property other than the parents’ primary residence.4 The only parentchild transfers that are eligible for the exclusion from reassessment is
the transfer of the parents’ primary residence or family farm, with strict limitations. To qualify for the exclusion, the property must transfer to a child or children, a child must also make the home their primary residence, and the exclusion is limited to the assessed value of the family home plus $1,000,000.5 Given many families in California own more than one property, Prop 19 threw a wrench into their estate planning with regards to minimizing property tax reassessments upon transfers to next generations. To illustrate the impact of Prop 19, consider the following example: Parent owns two properties: her primary residence and a vacation home. She and her deceased spouse bought the properties over 30 years ago. Each property cost $300,000 (“factored base year value”) and she plans on leaving the properties to her two children upon her death. On parent’s death, the primary resi-
