Estate Planning, Trusts
And Probate

Real Estate Transactions


Property Tax Planning

When Transferring Real Property or Upon a Death, Talk to a Lawyer

With education and planning, California property tax owners can prevent higher property tax when they die and help ensure that their loved ones can afford to keep the property. Otherwise, the inheritor of California real property upon a death may not be able to afford the higher property tax. Consulting with an experienced lawyer before transferring real property makes all the difference.

For California property owners, death creates a “change of ownership” that triggers increased property taxes, unless an exception applies, some of which require post-death paperwork to claim:

A Few Exceptions When Property Values Are Not Reassessed At Death

  • Spouses and Registered Domestic Partners who leave their real property to the surviving spouse/registered domestic partner.
  • Parents who leave their primary residence to their children.
  • Parents who leave up to $1 million of assessed value (or $2 million for a married couple) of other real property, such as second homes and investment property, to their children.
  • Grandparents who leave real property to grandchildren, if the grandchildren’s parents are deceased.
  • Co-owners who meet the requirements of Section 62.3 of the Revenue and Taxation Code, as explained below.

However, it’s easy to mess up on the rules. Proper planning can save tens of thousands of dollars in property tax, while mistakes are very costly.

We Can Advise You How to Transfer Property to Children so That The Transfer Qualifies For The Parent-Child Exclusion

Some transfers to children from a trust won’t qualify for the “Parent-Child Exclusion.” For example, if the Trustee can potentially distribute income to grandchildren when the children are still living, the real estate might be 100% reassessed upon the death of the person who created the trust. Or, if the trust provides for a specific division of property to one child, but in fact the property is distributed to another child, the transfer might trigger a full reassessment. Therefore, always consult an attorney after a death to determine what action is needed to address property tax on California real property.

When parents leave a house to their two children and one child wants all of the house, the Trustee of a trust may be able to borrow against the house, put the loan proceeds into a trust bank account and distribute the home to one child and the loan proceeds (cash) of equal value to the other child. This method of trust distribution, called a “non pro rata” distribution, along with filing a parent-child exclusion form with the assessor, may avoid a property tax reassessment that might otherwise be triggered.

Sometimes property tax reassessment upon death can be avoided through an action known as a “Qualified Disclaimer.” A disclaimer is a written document indicating that the signor does not want the asset that was given to her. The document must be signed and delivered to the Trustee of a trust within nine months of the right to receive the asset. In other words, if someone dies, then within nine months of the death, and before receiving any benefit from the trust asset, a trust beneficiary can sign a document that complies with the law, called a Qualified Disclaimer, informing the Trustee that the beneficiary does not intend to accept the asset. The Trustee would then need to distribute the asset as if the person disclaiming were deceased, and the asset would pass to the next beneficiary named in the trust.

Property tax rules are subject to change, so be sure to talk to a lawyer about the necessary steps for the distribution of property from a trust or any other transfer of real property upon death or during life.

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