Proposition 19, also known as the Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act, is a Constitutional Amendment that was passed by California voters in November 2020. It went into effect on February 16, 2021.

One of the key provisions of Proposition 19 is that it limits the ability of children to inherit their parents' home without triggering a reassessment of the property tax base. Under Proposition 19, if a child inherits a home from their parent(s) and does not use it as their primary residence within one year, the property tax base will be reassessed to the current market value.

This change has had a significant impact on California homeowners and their families. Prior to Proposition 19, children could inherit their parents' home without triggering a reassessment, even if they did not use it as their primary residence. This allowed children to keep their parents' low property tax base, which could save them thousands of dollars each year.

Under Proposition 19, there are a few exceptions to the reassessment requirement. For example, if the child is under the age of 18, disabled, or actively serving in the military, the reassessment can be delayed until they meet certain criteria. However, in most cases, children who inherit their parents' home and do not use it as their primary residence will have to pay higher property taxes.

Example of how Proposition 19 works

Suppose a couple owns a home in California that they have lived in for many years. The property tax base on their home is relatively low because they have owned it for a long time. The couple has two children, both of whom live out of state.

When the couple passes away, their children inherit the home. One of the children decides to move into the home and use it as their primary residence. The other child decides to rent out the home.

The child who moves into the home will be able to keep their parents' low property tax base. However, the child who rents out the home will trigger a reassessment of the property tax base to the current market value. This means that the child who rents out the home will have to pay higher property taxes.

Workarounds to avoid reassessment under Proposition 19

There are a few workarounds that children can use to avoid reassessment of their parents' home under Proposition 19. One option is for the child to move into the home and use it as their primary residence within one year of inheriting it. Another option is for the child to sell the home as soon as possible as the assessor office's have been sending out deficiency notices after a sale for even short periods after death.

If the child does not want to live in the home or sell it within one year, they can try to qualify for one of the exceptions to the reassessment requirement. For example, if the child is under the age of 18, disabled, or actively serving in the military, they can delay the reassessment until they meet certain criteria.

Children can also try to reduce the impact of the reassessment by claiming the Proposition 58/193 exclusion. This exclusion allows homeowners to keep their parents' low property tax base for up to $1 million in additional real estate and would be reassessed above that. However, the Proposition 58/193 exclusion is only available if the child uses the additional real estate as their primary residence.

Additional things to consider

It is important to note that Proposition 19 is a complex law with many exceptions and rules. If you are considering inheriting a home from your parents, it is important to consult with an experienced estate planning attorney to discuss your specific situation.

Here are some additional things to consider:

• If you are planning to inherit a home from your parents and you do not plan to use it as your primary residence, you may want to consider selling the home within one year to avoid reassessment.
• If you are planning to inherit a home from your parents and you are under the age of 18, disabled, or actively serving in the military, you may be able to delay the reassessment until you meet certain criteria.
• If you are planning to inherit a home from your parents and you own other real estate, you may be able to claim the Proposition 58/193 exclusion to reduce the impact of the reassessment.
• If you have any questions about how Proposition 19 will affect you, you should consult with an experienced estate planning attorney

It is important to consult with an experienced estate planning attorney to discuss your specific situation and to develop a plan to avoid triggering a reassessment of the property tax base when you transfer your home to your children. The use of an LLC could have consequences and there is no telling an assessor's office might declare it as a step transaction and not allowed. 

Conclusion

Proposition 19 has had a significant impact on California homeowners and their families. Children who inherit their parents' home and do not use it as their primary residence will likely have to pay higher property taxes. However, there are a few workarounds that children can use to avoid reassessment or reduce its impact.

Disclaimer: This is not legal advice, and everyone's situation needs to be assessed before considering any planning options.