When somebody inherits a home via a will, trust, intestacy or by gift, it is not necessarily true that the value of the home will be re-assessed for property tax purposes.
This can be especially important to a beneficiary who inherited a home from his parents or grandparents since they probably had a low base year value of their home. For example, if Bobby Beneficiary inherited a home, currently valued at $1 million dollars, from his late parents who had purchased the home for $50,000 decades ago, he would not be liable to pay property taxes on the assessed value of $1 million dollars but rather on $50,000, plus annual adjustments. (See Example 4).
Of note, Proposition 13 caps the levying rate for property taxes in California at 1%. Cal Const art XIIIA, §1.
The following are examples of situations in which the transfer will not result in a “change in ownership” and thereby avoid the dreaded re-assessment for property tax purposes.
1. Transfers in which proportional ownership interests remain the same before and after transfer
For example, Husband and Wife own a rental home in joint tenancy (50/50 split) and transfer it to a limited liability company in which they have same membership interest (50/50 split). Rev & T C §62(a).
2. Transfers to revocable trusts
For example, Husband and Wife execute a revocable (living) trust and transfer the home they live in into the trust by transferring title from themselves to the trust by naming the trustee of their revocable trust as owner. Rev & T C §62(d).
3. Interspousal transfers
For example, Husband and Wife own their home in joint tenancy, Husband dies and Wife inherits the other half of the house. Rev & T C §63.
4. Parent-child (or grandparent-grandchild) transfer
For example, in the case of a Parent-Child transfer, Husband and Wife own a home and have one child, Son. Husband and Wife pass away and Son inherits the home. Furthermore, in the case of a Grandparent-Grandchild transfer, Grandparent is only survived by a Grandchild, that is no child of the Grandparent outlives the Grandparent. Rev & T C §62.
5. Persons over age 55 or who are severely and permanently disabled may transfer the base-year value of a residence to a replacement dwelling in the same county, or in another county if the board of supervisors of that county adopts an ordinance granting base-year-value relief to replacement dwellings when the original dwelling was located in another county
As of this writing, seven counties (Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura) have ordinances granting base-year-value relief to replacement dwellings when the original dwelling was located in another county per Rev & T C §§ 68-69.5. For example, Person purchases a home in San Jose (Santa Clara County) and upon reaching the age of 55 sells their home in San Jose in order to purchase a home in Redwood City (San Mateo County) so they can be closer to their family.
If you have any questions please call my office (408) 866-8382 for a complimentary consultation or email me, s.miri@mirilaw.com.
My father is creating a living trust for him house that is fully paid for. He wants to put as beneficiaries myself, my sister and my son. He wants to have my son inherrit a portion as he has helped my father work on the house for the last 5 years. How would that work with the prop 13 rules. Would the house have to be reassesed because a grandchild is a benificiary as his parents are still living?
ReplyDeleteThe portion that is devised to your father's children is exempt from property tax re-assessment because of the parent-child exclusion.
DeleteThe portion that is devised to the grandchild, your son, would only be exempt if all parents of the grandchildren are deceased as of the date of sale or transfer. In other words, you and your sister would need to predecease your dad and your son would need to outlive your father in order for this exclusion to apply.
Can a widdowed wife gift her home to a only adult daughter?
ReplyDeleteWould the property tax on the home stay at the current amount per year under Caiforina prop 13?
Yes, although if the house has a mortgage this might accelerate the loan.
DeleteYes the property tax would remain the same if the primary residence was gifted. Rev & T C §63.1(a)(1).
What if only 2 of the three children out survive their parent and that parent wishes to gift their home to their grandchild born to their deceased child? Is there also a difference if the house is sold to the grandchild vs gifted or inherited?
ReplyDeleteThe situation you describe qualifies for the grandparent-grandchild exclusion.
DeleteBy sale or gift qualifies for the exclusion. However, there are significant tax differences between a sale and gift transaction.
I should mention that gifting real property to offspring is almost always a very poor decision because of tax, contractual and liability reasons. I have never advised a client to do such.
What are the tax ramifications of a parent gifting a joint tenancy to their child?
ReplyDeleteWhat is the tax liability if a parent gifts a joint tenancy with parent to an adult child?
ReplyDeleteThe parent also has prop 13 on their property.
I assume you asked both of these questions judging by the similarity and timing of the two questions.
DeleteYour question is ill-suited for Internet Q&A. There are gift, income and property tax issues raised by the transfer. There is no way I could answer this question competently given the lack of facts presently.
Regardless, I would NOT do this transfer. I would be shocked if any attorney advised you to do this.
If Husband inherited home from Parents (now deceased and have been deceased before husband married wife) can husband use interspousal transfer deed to transfer to wife and have wife maintain prop 13 protection?
ReplyDeleteYes but you need to fill out the parent-child exclusion form and possibly other forms depending on which county the property is in.
DeleteMy brother and I are beneficiaries of our mother's house (Los Angeles, CA). He wants out and I want to keep the home. I will need to refinance the home to buy him out. I was told that the property taxes will be reassessed. Is there a way for me to keep the existing property tax amount?
ReplyDeleteYou were told correctly.
ReplyDeleteThere is no sibling-to-sibling property tax exclusion. 1/2 of the property will be reassessed if you buy your brother out.
That being said, there is a way to maintain the current property tax assessment if allocations are made from the trust estate that are ultimately equal. Email me if you would like a further explanation.
If a parent adds his/her adult child to the deed to the house, is there any income tax implication to the adult child? Also, how do you add a person to a deed to the house?
ReplyDelete1. The income tax implications are too broad to answer succinctly.
Delete2. A quit-claim or grant deed will add a child's name to title.
I would talk to an attorney before you do this. Do-it-yourself legal work is rarely a prudent decision.
If a son, his daughter, and his daughter's mother (no longer married to son) are the beneficiaries of a living trust, and use the estate as a primary residence, does the son still receive re-assessment relief, and if so, is he only liable for "his share" of the re-assessed tax bill, or a full third of the resulting tax bill? And if he does receive this relief, will it later be "portable" (he is over 55) to another residence in one of the six counties that allow that?
ReplyDeleteYour question is ill-suited for Internet Q & A. You need to speak to an attorney in person or over the phone because there are too many contingencies involved.
ReplyDeleteMy father has a lot of children, but not all are interested in the house. If the family all agrees to let the property transfer to just one or two of my siblings, without cutting off the rest from anything other than the house, how would you recommend doing so? Can re-assessment be avoided? (Thanks!)
ReplyDeleteThis may be done but it requires an inspection of the trust document itself and borrowing against the home's equity to equalize distributions.
ReplyDeleteCall or email me if you have questions.
My companion (we are not registered domestic partners, and prefer not to be) has his son and myself as trustees on his property. The trust says that the property must go to one of the Grandchildren and cannot be sold until 2045 (when myself and his son would no longer be living). If my companion changed the Trust to be in my name only and upon my death is transfered to his Grandchild, would this change the property tax, which currently under Prop. 13?
ReplyDeleteI'm sorry your description is not clear enough for me to provide an answer.
DeleteWill the taxes change when I inherit property under a revocable trust, when I am not a blood relative. The trust says that I cannot sell the property, but is to be given to one of the Grandchildren upon my death.
ReplyDeleteIf the taxes can change, is it better to have his son and myself be a trustee?
I hope this is more clear.
It sounds like you would receive a life estate? If so, a recent court case said that the creation of a life estate after the death of the settlor of a revocable trust was a change in ownership, i.e. the property will be re-assessed.
DeleteI cannot answer the second question because there are too many variables involved. It is not a "yes/no" question like above.
I am currently (and have been for 20+ years)living with my recently retired mother. I have been paying a portion of the mortgage and most of the living expenses. This will be increasing due to her retirement. What is the best way to get my name on the house so i am covered if something were to happen to her?
ReplyDeleteRe-finance and add my name ?, Living will, Regular will?
I am looking for the simplest way that would keep the proposition 13 property taxes in place and limit tax and gift liabilities.
Lastly, if I don't get all these answers here, is there a specific type of lawyer or accountant that would (should) have all these answers?
(Home (In Orange County, CA)originally purchased for $150K +/-, current value $250K +/- with $65K left on mortgage (interest rate of 5.5% +/-) if this info helps)
There are other siblings that make no contribution to this residence and there is no Will at this time.
Thank You.
A gift deed from your mother to you would suffice. However, there are enormous tax implications, e.g. property, gift, income and estate. Still, this transfer qualifies for the parent-child exclusion so the property taxes would stay the same.
DeleteYour mother would obviously need to be okay with this as well.
A wills/trust lawyer can assist you with this. Call my office if you have any questions. (408) 866-8382
My mother established a QPRT for her home in Menlo Park, with me and my sister as beneficiaries. I live nearby and would like to keep her home after she passes, but can only do so if I can retain the Prop 13 tax basis. My sister lives out-of-state and has no interest in the home, other than getting her share of the estate value. 1/2 interest in the home has already been transferred, with the second half to transfer in a year. Can my sister do a quit claim to transfer her share to me, or would that result in a stepped-up cost basis? Can my mother amend the QPRT so that I am the sole beneficiary of the property (and provide for in-kind compensation to my sister)?
ReplyDeleteI would need to read the QPRT before commenting on your questions.
ReplyDeleteMy wife has a house under her name only and has a mortgage on the house. How is the best way to have me included as equal owner of the house? Just add me to the deed, or quit claim the house to include me, or create a revocable trust to include the house and me?
ReplyDeleteThe simplest and cheapest way is through a deed, grant or quit-claim will suffice. The best and most expensive way is to create a revocable trust.
DeleteI would definitely consult with an attorney before doing either because there are lasting implications to a real property transfer.
My spouse recently inherited a house under the grandparent-to-grandchild Prop 13 exclusion. We live out of state and intend to rent it. We're considering setting up an LLC for the property; would this trigger a reassessment? Are there concerns we should be wary of? Thanks for your expertise!
ReplyDeleteIt depends on how the LLC's ownership is structured. If the ownership interest remains the same after the transfer, there is no change of ownership. I set up a LLC for a client a few years ago who inherited rental property from his mother.
DeleteCall or email my office if you would like to discuss this further.
My sister and I inherited my mothers house in Orange County. The tax statement states My name ADM deceased name ESTAT. The deceased did not have a will, so the property was split during probate. I would like to purchase my sisters 1/2 of the house, do I need a property laywer or a real estate agent? Will the property taxes increase due to the purchase of her 1/2 of the house?
ReplyDeleteDo you need a real estate attorney or agent? No. Should you retain one? Yes.
ReplyDeleteIt is very likely that the property taxes will increase if you purchase your sister's 1/2 interest.
My two brothers and I inherited my mother's home in San Francisco. There is very little other assets other than the home and we are equal beneficiaries (the home is in my mother's trust). Is there any way I can avoid re-assessment if I buy out my two brothers? Thank you!
ReplyDeleteProbably not. I would need to read the trust and see the schedule of assets before I could give a definitive answer.
DeleteHi,
ReplyDeleteTo qualify for my home in 2002, my sister offered to cosign my loan, therefore she is listed on title as a joint tenant, Single Man and Single Woman. She’s never lived in the home with me nor paid into the mortgage.
Later in 2009, I refinanced, and everything went smoothly without a property tax reassessment.
In 2012, I refinanced again with lower rates and this time the lender said I had to quitclaim my sister off title. I foolishly didn’t think anything of it and did as they suggested, and proceeded with the quitclaim and refinance.
Shortly after the refi completed, I received a letter from the LA County Assessor’s Office stating there was a change in ownership and that my home was being reassessed at 2012 levels.
At this point, is there anything I can do to reverse, reduce or correct the reassessment? My sister is more than willing to help in anyway.
Thank you.
Probably not, a sibling to sibling transfer does not qualify for a property tax exclusion.
DeleteMr. Miri, could you assist with clarifying this section I found at the assessors website?
Delete"The creation, assignment, termination, or reconveyance of a lender's security interest in real property or any transfer required for financing purposes only (for example, co-signor)."
Would this be applicable or does it mean something else entirely?
Thank you.
No, it is not applicable. The quit-claim caused the change of ownership, not the re-finance.
DeleteCan I purchase a home by first having the current owner add me as tenant in common for (ex:) one year, then a year later gift me his 50% ownership?
ReplyDeletePossibly.
DeleteIf there is no mortgage, this can be done. If there is a mortgage, the lender might object to the transfer.
What you are describing is legally odd. No prudent attorney would advise doing this unless there are unique circumstances.
You should hire an attorney to assist with this and avoid potential pitfalls.
My mother owns a home with no mortgage and is still living, but needs income in order to move to an assisted living facility. I would like to retain the home for myself if I could keep her tax base. At present I am not on title. Is there a way to transfer title to me so I could refinance and accomplish this?
ReplyDeleteYes, a conveyance from your mother to you will suffice provided all legalities are met.
DeleteIt is highly recommended that you and your mother seek legal representation for this.
I have the opposite problem. We bought our house in 2006 for 640k, and now it's worth 425k. I want to get a reassessment. I know i can do a temporary reduction and i have done this successfully, but my base value still keeps going up (640k + 2% each year compounded). I know i can get a reassessment if i do construction e.g. add a bedroom, but i suspect the sneaky government would just say i added 50k of value to my home and add that to my existing base rather than give me a new base value using the market value of the home after construction. Transferring ownership might work i guess if i can transfer it temporarily to a trusted third part and back to us again? Is that possible? What fees would be involved? Thanks!
ReplyDeleteI do not have sufficient experience with Prop 8 to advise competently.
DeleteI would be hesitant to transfer it to a third-party because that might accelerate the loan.
Please call my office if you have further questions.
My mom's house is paid off and in Prop 13. She needs fulltime care and in order to pay for this my brother and I are likely going to have to rent out her house.
ReplyDelete1) Once the house is rented will it stay in Prop 13?
2) By turning her home into a rental property instead of her living residence will my brother and I loose any tax exemptions or pay additional taxes on it, if she passes away and then we decide to sell?
1. Renting the house will not result in re-assessment unless you have a 35 year or more lease.
Delete2. This question is too complex to answer via Internet Q/A.
Please email me if you have follow-up questions.
I am the caregiver to my mom and her home was purchased in the 60's so is paid off and under prop.13. She would like to know the best way to leave her house solely to me with the least tax penalty and for me to still be covered under prop. 13. I have 2 brothers also, but she does not want to leave her house to them as they already have homes of their own. Any advice would be appreciated....Thank you
ReplyDeleteThe best way to accomplish this is to have an attorney meet with your mother in-person to discuss this. From my experience, any alternative method would be just a waste of money.
ReplyDeletePlease contact me if you have follow-up questions.
My Mother Passed Away Leaving Me As Trustee. The Trust States To Divide The Trust Into Three Equal Shares , Myself, My Brother And My Sister. Will Prop 13 Still Be IN Affect? My Sister And Her Husband And I Reside In The Home
ReplyDeleteIt sounds like you may qualify for the parent-child exclusion, i.e. the property taxes stay the same. I would need to read through the trust to make sure it qualified.
DeletePlease contact my office if you have further questions.
i am in the process of helping my son buy a house. the bank tells me that since it is not 100 miles away from my primary residence it would be considered and investment and therefore subject to higher taxes. The solution the bank offered was to designate my primary residence (which is under prop 13)
ReplyDeleteas a rental and the house we are planning on buying with my son as my residence; if I do that would I loose the benefits of proposition 13 on my current home?
The facts you describe are legally bizarre.
DeletePlease call my office if you would like to retain my services. It sounds like you have received poor legal advice.
My grandmother owns her condo free and clear. It is contained within her trust, of which my mother (her only child), my sister and I are equal beneficiaries. When she passes, would the property remain in the trust? Or would we each be a 1/3 owner of the house? Would mine and my sister's portion be subject to a higher tax rate? Thank you
ReplyDeleteI cannot answer your questions without reading the actual trust document. It would be imprudent to guess as to whether the trust says to hold the realty in trust or distribute it outright and free of trust.
DeleteI am 58 and have co-owned a home with my husband for 34 years. We will be divorcing and selling the home. I wish to reinvest my capital in a residence for myself in the same county. Am I eligible to carry the tax rate from my current co-owned home to a single person owned home ? Thanks.
ReplyDeleteYou do not cite enough facts to answer your question, e.g. where is the property located? Only certain counties allow this type of transfer. See Rev & T C § 69.5.
DeletePlease call my office if you wish to retain my services.
Sorry. Sell co-owned property in city of San Mateo, San Mateo County; Purchase as single-owner in city of San Mateo, San Mateo County (equal or lesser value).
DeleteYou may qualify for this but you need to speak with an attorney in-person. While you meet the initial requirements, age and replacement property, there are other hurdles to clear. Here is a good link http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1
DeleteThanks very much.
DeleteI am looking for a 2nd opinion. Both of my parents have passed away. There is a trust which leaves the estate (house) to my 2 sisters and I as equals. I am the trustee. I want to buy the house out from my sisters. My attorney said that I could do that and there is a way that we can avoid a reassessment of the property and the higher taxes that would follow. When I told him that I had talked to a loan adviser at my credit union, he said that I can't get a mortgage loan to do this. To make it work I need to get a non-conventional hard money loan and put it into the trust. He went on to say that he could help me with a loan like this if I was interested. I don't see why a mortgage loan couldn't suffice.
ReplyDeleteI have read other advise columns that mention there is a way to do this, but they don't get into specifics.
Can you give some advice here?
Thank you
I do not comment, namely provide a second opinion, when a client has already retained an attorney out of professional courtesy for the other attorney. I believe this undermines the current attorney-client relationship.
Delete