Prop 19 Changed Everything: Estate Planning Strategies for California Homeowners
California’s Proposition 19 significantly changed how property taxes work when parents pass property to their children. Estate plans need to account for these new rules to avoid unexpected tax bills.
Understanding Proposition 19
California’s Proposition 19 is a constitutional amendment approved by voters in November 2020 that made major changes to property tax rules. It took effect on February 16, 2021, and represents the most dramatic change to California’s property tax system since Proposition 13 in 1978. Prop 19 was promoted as a measure to help certain homeowners (such as seniors, the disabled, and wildfire/disaster victims) by allowing them to transfer their low property tax base to a new home. At the same time, it tightened the rules for keeping a low tax base when property is transferred between parents and children or grandparents and grandchildren. This trade-off has significant estate planning implications for families. In this post, we explain what changed and what it means for you and your estate plan.
Parent-to-Child Transfers Before Prop 19 (Historical Rules)
To appreciate Prop 19’s impact, it helps to know how things worked before it passed. Previously, Proposition 58 (passed in 1986) governed parent-to-child property transfers in California. Under Prop 58 (and a related Prop 193 for grandparents to grandchildren), parents could transfer real property to their children without triggering a property tax reassessment in many cases. In practical terms, this meant children could inherit or be gifted their parents’ house and keep paying the same low property taxes that the parents had been paying, regardless of the home’s current market value.
Key features of the pre-Prop 19 rules (Prop 58/193):
Primary Residence Exclusion: Parents could transfer their primary home to children without any value limit, and the child would keep the parent’s low property tax base—even if they didn’t live in the home.
Other Property (Up to $1 Million): Parents could also transfer up to $1 million in assessed value (per parent) of other properties—like rentals or land—without reassessment, often sheltering much more in market value.
Grandparent-to-Grandchild Transfers: If the child’s parents were deceased, grandparents could transfer property to grandchildren with the same tax benefits under Prop 193.
No Residency Requirement: Children didn’t have to live in the inherited home to keep the low tax base. Rental and vacation use still qualified under the old rules.
These generous rules allowed families to preserve family properties and maintain low property taxes across generations. For example, if Mom and Dad bought a house in 1980 for $100,000 (with low taxes locked in by Prop 13) and that house is worth $1,000,000 today, their child could inherit the house and continue paying taxes as if it were still worth around $100,000. This often made it financially feasible for children to keep inherited property rather than sell it. All of these benefits, however, were significantly narrowed by Proposition 19 as of 2021.
How Proposition 19 Changed Parent-Child Transfers
Proposition 19 largely repealed and replaced the old parent-to-child transfer exclusions, introducing much stricter requirements to avoid property tax reassessment. If you plan to leave real estate to your children (or have recently inherited property from a parent), it’s crucial to understand the new rules in effect as of 2021:
Family Home Requirement: Under Prop 19, the property must have been the parent’s primary residence at the time of transfer, and the child must move in and make it their own primary residence to qualify for the exclusion. If it’s not the parent’s residence (e.g., rental or vacation home), or if the child doesn’t move in, the property is fully reassessed.
One-Year Occupancy Deadline: The child must move in and claim a homeowner’s exemption within one year of the transfer. This typically involves filing with the county to show the property is their principal residence. If multiple children inherit, at least one must move in to qualify. Only children who live in the home qualify, but all owners benefit from the excluded tax base if granted.
$1 Million Value Cap: The exclusion applies only up to the parent’s assessed value plus $1 million (adjusted for inflation—about $1,022,600 in 2023). If market value exceeds this, the excess is reassessed. Example: If the assessed value is $500k and market value is $1.75M, the new taxable value becomes $750k.
No Exclusion for Other Properties: Prop 19 eliminated the old $1M exclusion for other property types. Transfers of rentals, vacation homes, or commercial property are now reassessed to market value, unless another narrow exception applies.
Effective Date: These rules apply to transfers made on or after February 16, 2021. Earlier transfers may still qualify under Prop 58 or Prop 193.
Grandparent-to-Grandchild Transfers After Prop 19
Prop 19’s rules also extend to grandparent-to-grandchild transfers in cases where the parents are not living. Under prior law (Prop 193), a grandparent could transfer a home (and other property up to $1 million assessed value) to grandchildren without reassessment if all the grandchildren’s parents who qualify as the grandparent’s children were deceased. This allowed a similar tax break when skipping a generation.
With Proposition 19, the same new conditions apply to these transfers as well. A grandchild inheriting a grandparent’s property can keep the grandparent’s low tax base only if:
The property was the grandparent’s principal residence (or a family farm), and
The grandchild (beneficiary) moves in and uses it as a primary residence within one year, filing for the homeowner’s exemption.
If those conditions are met, the transfer can qualify for the exclusion, with the same $1 MILLION + ASSESSED VALUE cap on the excluded amount. If not (for example, if the grandchild doesn’t move in, or if it was a rental property of the grandparent), the property will be reassessed at full market value upon transfer to the grandchild – resulting in higher property taxes going forward. The requirement that the middle generation be deceased still applies, of course, for a grandparent-grandchild transfer to even be eligible.
In practice, this means that leaving real estate to grandchildren is now treated almost identically to leaving it to children under Prop 19. The grandchild must make it a family home to benefit. If you are a grandparent raising your grandchildren or planning to leave property to them because their parent (your child) has passed, it’s crucial to understand these rules so the grandchildren aren’t caught off guard by a big tax hike. An estate planning attorney can help structure such transfers (and consider alternatives if the grandchild won’t be living in the property).
Key Exclusions and Benefits That Remain After Prop 19
While Prop 19 narrowed the parent-child exclusion, it’s important to note a few key exclusions and tax benefits that still exist (or were introduced) under the law:
Spouse or Domestic Partner Transfers: Prop 19 did not affect transfers between spouses or registered domestic partners. These transfers remain fully excluded from reassessment, whether during life or at death. You can add, gift, or leave property to a spouse without triggering higher property taxes. This unlimited exclusion means the surviving spouse continues paying the same tax rate.
Family Farms: Prop 19 allows family farms to be transferred without reassessment if they remain in agricultural use. The $1 million value cap applies, similar to family homes. If the property includes a farmhouse used as a primary residence, it may also qualify for the family home exclusion.
In summary, after Prop 19, the only way to keep a low tax assessment in the family for the next generation is generally to meet the family home requirements (primary residence with ~$1M exclusion cap) or to have a qualifying family farm. All other intra-family transfers will incur a property tax reassessment. It’s also worth noting that transferring property via a living trust at death does not avoid these rules – the same Prop 19 conditions will apply to determine if the transfer is excluded from reassessment or not. Estate plans created before 2021 may need updating if they assumed the old Prop 58 rules would still apply.
Deadlines and Timing Considerations
Timing is critical under Prop 19’s framework. Here are some important deadlines and timing issues to keep in mind:
Effective Date: Prop 19 applies to transfers on or after February 16, 2021. Transfers before that date may still qualify under the old rules if completed in time and properly filed. Going forward, nearly all parent-child and grandparent-grandchild transfers fall under Prop 19.
One-Year Rule to Claim Exclusion: Heirs must move into the home and file a claim with the County Assessor within one year of the transfer (often the date of death). Missing the deadline generally leads to full reassessment. Some counties allow late filing if strict criteria are met, but don’t count on it—file early.
Ongoing Residence Required: To maintain the exclusion, the child must continue using the home as a primary residence. Moving out or renting it later can trigger reassessment. Prop 19 is designed to preserve family homes—not investment properties.
Conclusion
Proposition 19 has reshaped the estate planning landscape for California property owners. It ended the era of automatic low property taxes for heirs except in limited “family home” situations, and it requires families to be more proactive and strategic than before. By understanding the new rules on parent-child and grandparent-grandchild transfers, you can avoid unwelcome surprises and plan accordingly. The key takeaways are: if you want your children to benefit from your low Prop 13 tax base, someone likely needs to move into the property, and even then there are caps on the protected value. If that isn’t feasible, then you’ll need to plan for the property tax reset or consider alternate strategies (such as selling the property as part of the estate and passing on the proceeds).
Every family’s goals and assets are different, so there is no one-size-fits-all solution. The importance of good legal advice cannot be overstated – especially now. By working with an experienced estate planning attorney who understands Prop 19’s nuances, you can craft a plan that preserves your family’s wealth to the fullest extent possible under the law, addresses the needs of your beneficiaries, and ensures a smooth transfer of property when the time comes. With careful planning, you can navigate Proposition 19’s rules and still keep your family’s real estate legacy intact for the next generation.
Need help with Incapacity Planning, Estate Planning, Trust Administration, Probate, or Business Law? Devey Law is here for you. Call us at 805.720.3411 or email info@deveylaw.com to schedule a consultation.
This blog is for informational purposes only and does not constitute legal advice. Reading this blog does not create an attorney-client relationship between you and Devey Law, A Professional Law Corporation. Laws and regulations may change, and the information provided may not reflect the most current legal developments.
