Dear Client(s),
On December 17, we sent you an URGENT NOTICE regarding recently passed California Proposition 19, and the need to consider planning as soon as possible in order to preserve your home’s low property tax base for your children.
We immediately received back a number of client questions, so we have put together several FAQs (with answers) for your benefit.
Question #1: Will my Living Trust (or the Personal Asset Trust provisions inside of it) preserve my low property tax for my children?
Answer: With a Living Trust, the transfer to your children does not occur until your death. Assuming that occurs after February 15, 2021, your children may not be able to maintain your low tax base. This is why you may need to act now.
Question #2: If my child receives the property directly or in trust after I die, and lives in it as his or her principal residence, doesn’t he or she automatically qualify to maintain my low tax base?
Answer: At least in part. If the fair market value at your death is more than your tax base plus a $1 million exemption, any excess may be subject to reassessment regardless of whether the child lives in it. For example, let’s say your tax base is now $500,000 and the home’s market value at death is $2 million. The $2 Million value exceeds your tax base plus exemption (a total of $1.5 million) by $500,000, and that $500,000 will be added to your inherited tax base. So, if you have a low tax base but potentially high market value at death, you may want to complete the transfer to your child (or, better yet, to an irrevocable gift trust, separate from your Living Trust) before February 15.
Question #3: Can I continue to live in my home after I transfer it to my children (or to an irrevocable gift trust for them)?
Answer: Depending on the facts, there may be a way for you to continue to reside in it. This would be determined during your recommended consultation with Owen Kaye.
Question #4: Kavesh, Minor & Otis has always provided free consultations on estate planning issues, so why will I be charged to speak with Owen Kaye?
Answer: From time to time, we feel it is in the best interest of our clients to refer them to outside specialists when a matter is beyond our usual area of expertise and, particularly as here, there is a fast closing widow of opportunity. This is why we have arranged for Owen Kaye to be available to assist you. Due to the high demand for his services between now and the key deadline date of February 15, his calendar is only available to those who are serious about engaging his services. His initial consultation fee will be credited towards the fee for any work that you choose to move forward with.
Question #5: I heard that the State legislature may overturn Prop 19 as the result of the huge outcry by Californians who did not realize this provision was part of it. If that’s true, why should I act before February 15?
Answer: A Proposition becomes a part of the State Constitution and can only be overturned by a subsequent proposition voted on in a statewide election (which may not occur for another two years); it cannot be eliminated by an act of the legislature. However, there is speculation that the legislature may issue regulations defining how Prop 19 will work, including possibly deferring the February 15 deadline. Because of these uncertainties, it is best to act now. One of the benefits of transferring the home to an irrevocable gift trust, rather than directly to children, is that it may permit the planning to be reversed later, depending on what happens with the law, and do so in a way that the return of the home to you will not be considered a gift back by your children, which may cause certain tax problems.
Question #6: My parent has already passed, but the deed to the home has not yet been transferred to me (or to a trust for me, as provided in her estate plan). Do I need to make sure the deed transfer happens before February 15 in order to maintain my parent’s low tax base?
Answer: No. The transfer for property tax purposes was deemed made on the date of your parent’s death. So you can keep your parent’s low tax base without having to do anything before February 15.
Question #7: If I transfer my home to my children now (or to an irrevocable gift trust for them), will they lose the “step-up in basis” at my death and have to pay more capital gains taxes if they sell it after I’m gone?
Answer: An irrevocable gift trust may be designed to retain the desired step-up in capital gain basis that can occur at your death. A transfer made directly to your children will not.
Question #8: Can I do this type of planning to maintain my low tax base with a rental property or a vacation home?
Answer: There are very limited, if any, other types of planning options available before February 15, which you should address in your consultation with Owen Kaye.
IF YOU WOULD LIKE TO PURSUE AND COMPLETE PLANNING PRIOR TO THE DEADLINE OF FEBRUARY 15, WE AGAIN RECOMMEND THAT YOU IMMEDIATELY BOOK A CONSULTATION WITH OWEN KAYE
Call 310-307-3441, ask for Carol, and tell her you were referred by Kavesh, Minor & Otis and schedule your initial meeting with Owen Kaye as soon as possible.
If you have any friends, relatives, neighbors or co-workers who could also benefit from this information, please feel free to forward this email to them!
