In California, property taxes are calculated based on the assessed value of the property, and this value can increase significantly upon transfer of ownership. However, the state provides some protections for families to avoid drastic increases in property taxes when properties are transferred between certain family members. One important provision of this protection is the Grandparent-Grandchild Reassessment Exclusion. This exclusion helps grandchildren inherit real estate from their grandparents without facing a potentially steep property tax reassessment.
What Is the Grandparent-Grandchild Exclusion?
The Grandparent-Grandchild Reassessment Exclusion allows eligible grandchildren to inherit their grandparent's property without triggering a reassessment for property tax purposes. Typically, when a property changes ownership, the county assessor reassesses it at its current market value, which can significantly increase the property taxes. Under this exclusion, however, the property's assessed value (which determines the amount of property tax due) remains the same as it was for the grandparent, thus providing a significant tax benefit.
How Does It Work?
The exclusion is available when a property is transferred from a grandparent to a grandchild, but there are important qualifications and limitations. Specifically:
Deceased Parent Requirement: The exclusion only applies if the parents of the grandchild (the child of the grandparent) are deceased at the time of the transfer. In other words, if one or both of the parents of the grandchild is still alive, the exclusion cannot be used.
Principal Residence and Limited Value: The exclusion applies primarily to a principal residence, and there is a limit on the value of other properties that can be transferred without reassessment. For example, in addition to a principal residence, a grandparent can also transfer up to $1 million of assessed value of other property (such as rental properties or vacation homes) to a grandchild without reassessment.
Filing a Claim: To take advantage of this exclusion, the grandchild must file a claim with the county assessor's office. This is not an automatic process, and there are time limits for filing the claim. Typically, the claim must be filed within three years of the transfer or before the property is sold.
Changes in the Law Under Proposition 19
As of February 16, 2021, Proposition 19 introduced significant changes to the rules governing property tax exclusions, including the grandparent-grandchild exclusion. Prior to Proposition 19, the exclusion could apply to any property transferred between grandparents and grandchildren, but now there are stricter limitations:
Principal Residence Requirement: Under Proposition 19, the exclusion now applies only to the transfer of a grandparent's principal residence to a grandchild who will also use the property as their principal residence. The previous rule that allowed for the transfer of vacation homes or rental properties has been substantially limited.
$1 Million Cap: Proposition 19 also introduced a cap on how much of the property’s value can be excluded from reassessment. The first $1 million in value remains excluded, but any value over that amount will be reassessed.
Benefits and Pitfalls
The Grandparent-Grandchild Reassessment Exclusion can provide substantial tax savings for families in California. By allowing the grandchild to retain the grandparent's lower assessed value, the property taxes can remain affordable, even if the property has appreciated significantly in value over the years.
However, navigating the exclusion rules can be complex, particularly after the changes brought by Proposition 19. Failing to meet the requirements or missing important filing deadlines can result in losing the exclusion altogether, leading to a potentially significant increase in property taxes.
Conclusion
For families in California, understanding the Grandparent-Grandchild Reassessment Exclusion is crucial when planning for the transfer of property between generations. With the changes introduced by Proposition 19, it is more important than ever to seek professional legal and tax advice when considering such a transfer.
If you are planning to inherit property from a grandparent or transfer property to a grandchild, consult with an estate planning attorney to ensure that you qualify for the reassessment exclusion and to maximize the tax benefits available under California law.
This blog post can help California families navigate the complexities of property tax exclusions, offering insights into how they can preserve wealth and minimize tax burdens across generations.
Contact Us for Legal Help
If you need help with estate planning, the probate process or resolving an inheritance dispute, contact the top-rated California probate attorneys Moravec, Varga & Mooney – today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
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