Prop 19 in California

[Alice Chen]

Seems like prop 19 has passed in California. What's the best strategy with this new law, that will reassess rental property taxes to fair market value, if passed to your heirs. Since the law does not take into effect until Feb 2021, would it be recommended to now pass on property to heirs before the deadline?

[Lynnette E.]

Originally posted by @Kyle J.:

@Alice Chen  I think the way to do it would be to have the properties in a trust with the heirs listed as successor trustees.  That way the properties just stay in the name of the trust upon death and do not get re-assessed.  This would also have the added benefit of avoiding probate.

Consult your own tax/legal professionals though for specific advise unique to your own situation.

I went through this process in CA.  A trust will not avoid this being considered a transfer of ownership.  CA views the ownership as being owned by a person but held in a trust.  When the Trustor passes then they consider the new owner to be the Trustee...with the property of the Trustor then of the Trustee held in a Trust.  It does not matter if you or I agree, that is the way CA looks at it.

I managed my parent's trust.  When they had both passed my siblings and I were all co-trustees. This was a CA Trust. There were 3 properties that had been titled to the Trust in CA.   My parents lived, set up the trust and died on CA.   The trust filed income taxes under my mom's SSN.  We had a certain period of  time, I think it was 150 days, to notify the assessor's office of the death of my mom.  (My dad had passed previously.)  There is a form available at the assessor's office.

The state of CA and ALL assessor's offices consider this as a change of ownership.  This is cut and pasted from the LA County Assessor's office:      "The Assessor’s Office must be notified upon the death of an owner within 150 days of the date of death, or if the estate is probated at the time the inventory and appraisal is filed. Click the button below to complete and submit the Change of Ownership Statement (Death of Real Property Owner). This form is required even if the decedent held the property in a trust."

All 3 of my parent's properties were held in LA County.  They advanced reviewing my change in ownership forms to a supervisor. They wanted a copy of the entire trust, but could not read and understand it.   First, they wanted proof of the relationships between trustors and trustees, so I had to provide birth certificates showing parent child relationship to avoid a new evaluation.  Then since one Trustee (one of my brothers) was deceased, the Trust passed his interest on to his children as beneficiaries, but they do not become Trustees.  These 2 children of my brother are grandchildren of the Trustors.  So I had to provide birth certificates for my brother and for his 2 children, and a death certificate for my brother.  

So all should have been well because all trustees and beneficiaries were in parent child or grandparent child relationships, all exceptions to a reassessment.

But, no, life is never that easy with a blood sucking government wanting every drop of blood out of the dead.  

Someone in the assessor's office decided that when my brother died his interest passed on to his wife, so that meant her share was reassessed.  So I asked them to reconsider because they were in error.  The supervisor passed me on to their attorney.   I explained that the Trust specifically excluded spouses and clearly stated that spouses do not inherit or in any way benefit from the trust assets but the trust assets are passed on to the children.  I resent that page to the attorney, who said, yep, I was right.  (well, yes, I spent a lifetime using this Trust, I knew what it said, and what it mean.)  So the County attorney told the supervisor I was correct and that the Trust did not pass anything to spouses and the children were grandparent/grandchild relationship, so there was no reassessment.  

FINALLY!  A year after the property was sold! A year and a half after my mom passed away.   But I did not get a supplemental tax bill, so all was well.

So, I can absolutely guarantee that a Trust will NOT save you from this new proposition.  I am not an attorney, but do battles with them as needed.