California Proposition 19 Impact on Your Estate Plan

Introduction
In November 2020, Californians voted on Proposition 19, a ballot initiative that aimed to make significant changes to the state's property tax and inheritance laws. Proposition 19 marked a pivotal moment in California's legal landscape, sparking debates and discussions about property taxation, intergenerational transfers, and the overall impact on homeowners and the state's revenue. This article delves into the key provisions of Proposition 19 and explores how it has changed the law in California.
Background: Proposition 13 and Proposition 58
To understand the significance of Proposition 19, it's crucial to first grasp the context provided by previous propositions. Proposition 13, passed in 1978, significantly limited property tax increases by capping the rate at 1% of a property's assessed value. Furthermore, it restricted reassessment to occur only when a property was sold, ensuring that long-time homeowners enjoyed relatively stable property taxes.
Proposition 58, approved in 1986, allowed parents to transfer primary residences and up to $1 million in assessed value of other real property to their children without triggering a reassessment. This played a vital role in allowing families to pass down homes without imposing potentially burdensome tax hikes on the next generation.
Proposition 19: A Shift in Property Tax Rules
Proposition 19 brought forth substantial changes to these existing property tax regulations. Its main provisions include:

1. Reassessment Rules for Transfers: Proposition 19 eliminated the ability to transfer primary residence property tax assessments from parents to children or grandparents to grandchildren unless the recipient uses the property as their primary residence and the market value of the property does not exceed the assessed value by more than $1 million. This provision aimed to close what some perceived as a loophole, where properties were inherited and rented out while maintaining the original, lower tax assessment.
2. Seniors and Disabled Individuals: Proposition 19 expanded benefits for homeowners over 55, severely disabled homeowners, and victims of natural disasters. These individuals are now allowed to transfer their primary residence's assessed value to a new property within the same county or another county that accepts transfers, up to three times. This change was meant to provide flexibility to older and vulnerable property owners.
3. Revenue Allocation: A significant portion of the additional property tax revenue generated by the changes in Proposition 19 is designated to fund wildfire prevention efforts and firefighting personnel, addressing a pressing concern in a state frequently affected by devastating wildfires.
   
   Proposition 19 impacted the Estate Plans of many California citizens. If your Estate Plan was created before 2021 it is very important to review distribution provisions which may be impacted by this new law.