CA Proposition 13: Keeping the Tax Value of Your Parents’ Home

  • Posted on: Feb 11 2022
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Buying a home is one of the most exciting purchases you will likely ever make. Real property is often lauded for the fact that it commonly increases in value, or appreciates, over time. But what if you purchase a home and its value increases exponentially? Will you then be required to pay so much more in taxes? Luckily, in California, this isn’t the case. Under California’s Proposition 13, an appraised property value can only increase by a small amount each year if ownership remains the same. 

Think of it this way: let’s say that you purchased a home back in 1995 for $250,000 and it’s now worth $1 million. For purposes of your property taxes, your county tax assessor cannot value your home at $1 million. Instead, the value of your home will stay at $250,000 plus either 2% or a percentage equivalent to the consumer price index – whichever is the lesser of the two. To put it simply, Proposition 13 saves you a whole lot of money in tax payments. 

What Happens When a Child Inherits the Home?

When a child inherits a home from their parent after he or she passes, the lower of the two valuations for the home can stay the same if the child files what is called a “parent-to-child exclusion form.” This form must be filed within three years of the parent’s death. If the form is not filed in that period of time, the child will incur a supplemental assessment and must pay the higher tax amount for any years that the form was not requested. 

Who Should File the Form?

Whether a beneficiary or trustee must file the exclusion is dependent upon the specific facts and circumstances of each individual situation. If the home is distributed in a Trust in just a few months, the beneficiary of the trust will likely be the one who must file the exclusion since the home is no longer the property of the Trust. However, if the home doesn’t pass for some years or if the Trustee holds onto the home in violation of the Trust’s terms, the Trustee would most likely be responsible for filing the form. 

The same situation applies to property that passes to a grandchild if the child of the home predeceased them. In such a case, the grandchild would be entitled to that same parent-to-child exclusion. But no matter the timeline, the most important thing is that someone involved files the exclusion form in order to prevent paying thousands of dollars in taxes that are unnecessary. 

In any case, it’s always in your best interest to consult with a knowledgeable and experienced California Estate Planning attorney who can guide you in the right direction. 

The Law Offices of Brian L. Fox, APLC Help those Who Wish to Protect Assets and their Loved Ones

If you or your loved one live in California and have any questions regarding your Trust, a pour-over will, reassigning your assets, or anything of the matter, it’s in your best interest to consult with a qualified California estate planning attorney who can help. 
At the Law Offices of Brian L. Fox, APLC, we know how important it is to protect that for which you’ve worked so hard and those whom you love so much. We will help you to establish a comprehensive estate plan that meets your needs. To learn more or to schedule a free consultation, contact us today!

Posted in: Estate Planning, Wills and Trusts