There are really just a couple options when it comes time to make a decision on the disposition of real estate at the time of distribution. Sell the property and distribute the proceeds or one (or more) of the beneficiaries can keep the property.
If the person(s) that keeps the property is the son or daughter of the deceased, Proposition 19 allows for a transfer of the property taxes paid by the parents up to the property’s full base year value plus $1,022,600 (adjusted up from $1,000,000 on 2/16/2023) if the following conditions are met:
1. The property was the primary residence of the surviving spouse at the time of death.
2. The property will be the primary residence of one of the children taking the property at distribution.
3. The other beneficiaries are also children of the deceased (though one may be able to get all of their siblings share even if there are non-children beneficiaries).
Proposition 19 also allows for anyone over the age of 55 to transfer their current primary residence property tax base to a replacement primary residence in California. This allows a child beneficiary to take their parents’ property at distribution and sell the property. One has 12 months to move into the property. The parent’s property tax base can then be applied to a new property as long as it is owner occupied. If the last surviving spouse died before February 15, 2021, non-owner occupied properties may qualify under Proposition 58.
In order to qualify for the Proposition 19 exclusion for reassessment of property taxes and take advantage of your parents’ low Base Year Value, the distribution of the trust or estate must be equal. Each sibling must get the same amount whether it is cash, equity or other assets. As long as each child beneficiary gets the same value, the child taking the property almost always can get full benefit of the parents’ low Base Year Value. Many times the trust or estate will not have enough cash or other assets to make an equal distribution. In these situations the trust or estate can borrow the money from a third party (not the person taking the property) and use the loan proceeds to pay off the other siblings share. This may or may not be a great solution. The calculator below will show you how long it will take for the property tax savings to cover the costs of a loan from a third party. One needs to be fairly certain they will live in the home longer than the time it takes to break-even on third party loan costs or have a plan to transfer the low tax base to another property after the sale of the parents’ home.
PROPOSITION 19 BENEFIT CALCULATOR
PLEASE MODIFY THE FIELDS SHOWN IN RED TO CALCULATE YOUR ESTIMATED BENEFIT
This calculator is for estimation purposes only. The trust loan benefit calculator should be used as a tool to determine if it makes sense to move forward. Exact property tax savings should be discussed with your attorney. Another factor to consider is the interest paid on the outstanding loan balance. Most of our borrowers payoff or pay down our loan immediately keeping the interest costs to a minimum. Borrowers paying off our loan with a refinance may pay interest on a larger balance which could affect the break-even point calculation. If you are interested in taking advantage of the California Proposition 19 Exclusion from property tax reassessment on an inherited home, please call us at 877-464-1066. We are always available to answer any questions you have and to help you begin the financing process.