When it comes to protecting your home and other real estate from California's Proposition 19 reassessment risks, your living trust can either be your family's greatest ally—or an unintentional landmine. Trusts designed before Proposition 19 likely don't contain the provisions necessary to navigate its unique rules, leaving trustees exposed to unnecessary liability and creating confusion for county assessors.

Here's why this matters and what steps you can take to ensure your trust is not only compliant but also equipped to protect your family's property tax legacy.

Why Proposition 19 Matters for Living Trusts

Proposition 19 reshaped how property tax reassessments apply to inherited properties in California. Under the rules:

1. The parent-child property tax exclusion applies only if the property is used as the primary residence of the inheriting child.
2. The inheriting child must file timely and correct paperwork with the county assessor to claim the exclusion.
3. The property's market value cannot exceed $1 million over the base year value without triggering partial reassessment.

If any of these criteria are unmet, the exclusion is lost, and the property may be reassessed at its current market value—often resulting in a massive increase in property taxes.

For trustees, this raises a unique challenge: how do you comply with the “one child as a primary resident” requirement when a trust divides property among multiple beneficiaries? Without careful planning, county assessors may assume that no single beneficiary qualifies for the exclusion, resulting in reassessment.

The Role of the Living Trust in Proposition 19 Compliance

A properly drafted living trust is essential for ensuring Proposition 19 compliance and avoiding reassessment. Here's what it should include:

• Specific Proposition 19 Provisions: The trust must explicitly state the Grantor's intent to qualify for the parent-child property tax exclusion. It should also outline steps for the trustee to facilitate compliance, such as identifying the qualifying beneficiary.
• Trustee Guidance and Liability Protection: Trustees should not be left to figure out compliance on their own. The trust must guide the trustee in notifying beneficiaries of their responsibilities, such as establishing the property as their primary residence and filing required paperwork. It should also release trustees from liability if beneficiaries fail to meet these obligations.
• Instructions for Multiple Beneficiaries: If the trust divides property among multiple children, it must empower the trustee to allocate the property to a single beneficiary who intends to live there while compensating the others with an equal share of other trust assets. This avoids confusion and ensures compliance with the “one child” rule.

Avoiding Reassessment: Measures for Trustees and Beneficiaries

County assessors are tasked with ensuring compliance with Proposition 19, but they often view trusts with multiple beneficiaries as a red flag. Here's how a well-drafted trust can help:

1. Clear Allocation of Property: The trust should direct the trustee to allocate property to one qualifying beneficiary and provide an explanation to the county assessor. This prevents assumptions that no beneficiary qualifies for the exclusion.
2. Evidence of Primary Residence: Beneficiaries must provide proof of primary residence, such as a homeowner's exemption, utility bills, or voter registration. The trust should require this documentation to strengthen compliance.
3. Timely Filing Requirements: Trustees should be required to assist beneficiaries in filing necessary forms with the county assessor promptly. Delays can result in the automatic loss of the exclusion.

For example, if a trust leaves a property to three siblings, it may empower the trustee to allocate the home to the sibling who agrees to live there while distributing other assets to the remaining siblings. This not only preserves the parent-child exclusion but also ensures fairness among beneficiaries.

Amending an Old Trust Isn't Enough

Many assume they can simply amend an older trust to comply with Proposition 19. Unfortunately, this often doesn't work. Trusts drafted before Proposition 19 lack the foundational language necessary to integrate the new rules seamlessly. Amending such a trust usually involves rewriting multiple sections, which can be more complex and costly than creating a new trust.

For instance, older trusts often direct property to be distributed outright to all children without specifying how one child can occupy the home while compensating others. Without specific provisions for allocation, compliance with Proposition 19 becomes nearly impossible.

Protecting Your Family's Property Tax Legacy

Navigating Proposition 19's complexities requires careful planning and precise language in your living trust. A trust without specific Proposition 19 provisions exposes your family to unnecessary risks, including property tax reassessment, trustee liability, and disputes among beneficiaries.

At the Law Office of James Burns, we are one of the few firms proactively incorporating Proposition 19 provisions into our trusts. Whether you need a new trust or are considering amendments to an old one, we ensure your estate plan aligns with the latest laws and protects your family's financial future.

Don't leave your family's property tax legacy to chance. Contact us today at (949) 305-8642 or visit www.jamesburnslaw.com to schedule a consultation. Let us help you create or update your trust to meet the demands of Proposition 19 and safeguard your family's most valuable assets.