The Prop 19 deadline – its impact on California estate planning

On Behalf of | May 17, 2021 | Estate Planning

In San Jose and across California, changes to the law can stoke inordinate concern and fear as to how individuals and their families will be impacted. This is especially true with property, taxes and new laws that will impact estate planning. It is perfectly legal and wise for those who own various properties to do whatever they can within the confines of the law to save money and pass those properties to loved ones. However, recent changes like Proposition 19 led to people rushing to transfer property before the stated deadline. Now that the deadline has passed, people are wondering whether they should still update their estate. For questions like these, having comprehensive and professional advice is wise.

Scores of people transferred ownership before the deadline

Taxes are a major worry in estate planning. In the past, before Proposition 19 came to pass, people transferred property to descendants based on the assessed value in real time. That means if it is transferred today, the value from today will be used. This was based on how much it cost when it was purchased and moderate increases each year. Proposition 19, passed in November 2020, changed that. Those inheriting the property can only get the lower assessment when they have moved into the property within one year. Failure to do so results in the property being reassessed based on the current market.

People were behaving desperately to take advantage of the opportunity to transfer the property before the deadline. This can have a major effect on people’s finances and undo long-held plans to leave a home to children and grandchildren without worrying about a major financial strain. The goal was to prevent heirs from profiting by getting the tax break and renting out the property, but that is relegated to people who are considered well off.

Weighing options with experienced legal help

Proposition 19 is an example of an unexpected change that is creating unintended consequences and may harm people who are of lesser means and just want to keep the home. A bill to delay the law being put into effect until Feb. 16, 2023 has been introduced because of the ongoing health crisis and challenges with moving within a year. If it is passed, then there would be a small window for those who want to avoid property taxes. Although it might be difficult, there could be strategies in estate planning that can be effective to help those negatively impacted by this new law. To gauge what is possible, it can be helpful to consult with those experienced in these matters to consider the options and take the necessary steps to deal with the situation.