Exclusions to Property Tax Reassessments
Don’t you just love paying property taxes? Well, no, no one enjoys that. But we all accept these taxes as a necessary part of living in our beautiful communities. It can become problematic, though, when tax assessors perform reassessments of your property, and decide that your home and land have increased in value. This happens any time property changes hands. You might not care about that if you’re selling your home to a stranger, but it’s a problem if you want to bequeath your property to an heir. Now they owe a hefty tax bill to the county, and it doesn’t always seem very fair.
You might be interested to know that there are sometimes exclusions to property tax reassessments. If your situation allows for the application of one the exclusions, you might be able to avoid a tax hike. However, we should warn you that these are complicated maneuvers, subject to limitations, and require the guidance of a skilled estate planning attorney in order to be sure that you’ve complied with the law.
The parent-child exclusion to avoid reassessment. This exclusion allows you to transfer your principal residence (and up to 1 million dollars’ worth of the full cash value of other real property) to your children, without a reassessment.
The domestic partner exclusion to reassessment. Generally speaking, marriage carries many automatic legal benefits regarding the transfer of property after death. However, if you don’t want to get married, California law does provide some benefits to registered domestic partners. It is possible to transfer your real property to your domestic partner upon your death, without triggering tax reassessment. However, this can be a complicated maneuver, so be sure to discuss it with an estate planning attorney in order to properly protect your loved one.
Transfer to a revocable living trust. If you are not yet ready to transfer your property, and want to make provisions for it after your death, you can place it in a revocable living trust. Upon your death, the property can still be reassessed unless you’ve made plans for a second transfer that qualifies for an exemption.
Transfer to a non-pro rata trust. This type of trust can be more useful if you have more than one child, and want to distribute assets unequally. For example, you might place your real property and some cash in the trust, with one child inheriting the property and another child due to inherit the cash.
If you’re considering one of the above trust options, be aware that certain actions can invalidate your reassessment exclusion. For example, if one of your beneficiaries’ receive beneficial use of the property before your death (such as living on the property or receiving rents from it), your entire exclusion can be invalidated. Many other such subtle nuances in the law exist, so discuss your plans in detail with our estate planning attorney before proceeding with any of the above exclusion actions.