ESTATE PLANNING AND EXCLUSIONS FROM PROPERTY REASSESSMENT

One of the primary purposes of placing a property into a Trust and to have a complete Estate Planning package is to avoid re-assessment of the property upon transfer to those that are inheriting the property.

If a transfer of real property results in the transfer of the present interest and beneficial use of the property, the value of which is substantially equal to the value of the fee interest, then such transfer would constitute a change in ownership unless a statutory exclusion applies.

An exclusion occurs when the assessor does not reassess a property because the property or portions of the property are automatically excluded from reassessment or is eligible to be excluded if the owner properly files a claim. The following abridged list covers most changes in ownership that are excluded from reassessment, either automatically or by claim.

Changes in ownership that require a claim to be filed to avoid reassessment include the following:

• Transfers of the principal place of residence between parents and their children (there is no limit on the value of the residence) if a completed application is filed timely with the county assessor's office (Proposition 58).
• Transfers of up to $1 million of real property between parents and their children, other than a principal place of residence, if a completed application is filed timely with the county assessor's office (Proposition 58).
• Transfers of a principal place of residence from grandparents to their grandchildren, but not vice versa (and the transfer of up to $1 million of other real property from grandparents to their grandchildren) provided that:
  • the transfer occurs on or after March 26, 1996;
  • the grandchild(ren)'s parent (grandparent's child) died on or before the date of transfer; and
  • a completed application is timely filed with the county assessor's office (Proposition 193).
• Transfers of the principal residence between two cotenants that occur upon the death of one of the cotenants, provided that:
  • The two cotenants together owned 100 percent of the property as tenants in common or joint tenants.
  • The two cotenants must be owners of record for the one-year period immediately preceding the death of one of the cotenants.
  • The property must have been the principal residence of both cotenants for the one-year period immediately preceding the death of one of the cotenants.
  • The surviving cotenant must obtain a 100 percent interest in the property.
  • The surviving cotenant must sign an affidavit affirming that he or she continuously resided at the residence for the one-year period preceding the decedent cotenant's date of death.
• The purchase of a replacement dwelling by a person who is 55 years of age or older, where the replacement dwelling will be that person's principal place of residence and is equal or lesser in value than the original residence. In such cases, the base year value of the previous home may be transferred to the new home so that the new home will not be reassessed to its current fair market value but will be able to retain the old home's base year value. The original and replacement residences must generally be located in the same county; however, as of May 2008, seven counties allow a transfer of the base year value from the original property located in another county to a replacement dwelling located in that county (Proposition 60/90).
• The purchase of a replacement property if the original property was taken by governmental action, such as eminent domain or inverse condemnation.
• The purchase of a new principal residence by a person who is severely disabled (Proposition 110-same as Propositions 60/90).
• Transfers of real property between registered domestic partners that occurred between January 1, 2000 and January 1, 2006 (section 62(p) of the Revenue and Taxation Code). County assessors are required to reverse any reassessments that resulted from any transfers of real property between registered domestic partners that occurred during this time period if the taxpayer files a timely claim. However, relief for such a reversal is applied only on a prospective basis. The registered domestic partners will not receive any refunds.

Changes in ownership that are automatically excluded from reassessment include the following:

• Transfers of real property between spouses, which include transfers in and out of a trust for the benefit of a spouse, the addition of a spouse on a deed, transfers upon the death of a spouse, and transfers pursuant to a divorce settlement or court order (section 63 of the Revenue and Taxation Code; Rule 462.220).
• Transfers of real property between registered domestic partners that occur on or after January 1, 2006, which include transfers in and out of a trust for the benefit of a partner, the addition of a partner on a deed, transfers upon the death of a partner, and transfers pursuant to a settlement agreement or court order upon termination of the domestic partnership (section 62(p) of the Revenue and Taxation Code).
• Transactions only to correct the name(s) of the person(s) holding title to real property or transfers of real property for the purpose of perfecting title to the property (for example, a name change upon marriage).
• Transfers of real property between coowners that result in a change in the method of holding title to the property without changing the proportional interests of the coowners, such as a partition of a tenancy in common.
• Transfers between an individual or individuals and a legal entity or between legal entities, such as a cotenancy to a partnership, or a partnership to a corporation, that results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and the transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remains the same after the transfer.
• 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).
• The substitution of a trustee of a trust or mortgage.
• Transfers that result in the creation of a joint tenancy in which the transferor remains as one of the joint tenants.
• Transfers of joint tenancy property to return the property to the person who created a joint tenancy (i.e., the original transferor).
• Transfers of real property to a revocable trust, where the transferor retains the power to revoke the trust or where the trust is created for the benefit of the transferor or the transferor's spouse.
• Transfers of real property into a trust that may be revoked by the creator/grantor who is also a joint tenant, and which names the other joint tenant(s) as beneficiaries when the creator/grantor dies.
• Transfers of real property to an irrevocable trust for the benefit of the creator/grantor or the creator/grantor's spouse.

Please see the California Board of Equalization for more information:
https://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm

Contact our attorneys to make an appointment if you have further questions.