Page 89 - AAGLA-APR 2022

Member Update
STOP! The Proposition 19 Reassessments! Use a Special Type of Trust...
By Bruce Mack and Dr. Gina Gaudio-Graves, The Platinum Trust Group
(Editor’s Note: Proposition 19, also referred to as Assembly Constitutional Amendment No. 11, is an amendment of the Constitution of California that was narrowly approved by voters in the general election on November 3, 2020. Proposition 19 imposes new limits on property tax benefits for inherited family property. Under Proposition 19, a child or children may keep the lower property tax base of the parent(s) only if the property is the principal residence of the parent(s) and the child or children make it their principal residence within one year. Additionally, any secondary property, such as a vacation home, rental property or commercial property, could be transferred with up to $1 million of the assessed value being exempt from the increase in property taxes — regardless of its use by the children. Proposition 19 allows homeowners who are over 55 years of age, disabled, or victims of a wildfire or natural disaster, to Ttransfer their lower assessed property value of their primary home to a newly purchased or newly constructed replacement principal residence up to three times (or once per disaster). The tax base may be transferred to a property located anywhere in the state.)
here is a viable solution for avoiding the • Example: The average California County Assessors pain and financial suffering Proposition tax rate is 1.25%. So, for every $1 million in 19 has created and more. To better reassessment this means your heir(s) will have to understand the problem, you will want to pay an additional $12,500 a year in property taxes get the background. or over the following 10-year period and or every
In November 2020, Californians voted
to pass the Proposition 19 Constitutional Amendment. The new law went into effect on February 16, 2021 (roughly 1-year ago). To understand the impact of Proposition 19 on investment property owners, it is helpful to recognize that it modifies Proposition 13 (which was originally passed back in 1978). However, Proposition 19 has
changed these rules in several ways, including:
• The exemption from reassessment for up to $1,000,000 in assessed value of property other than a primary residence transferred from parent to child or grandparent to grandchild has been eliminated completely.
• Apartment owners who have worked their whole life to build up a transferable estate are being punitively disadvantaged. Their apartment building(s) worth in many cases millions of dollars when passed down to their loved ones are being reassessed.
10-year period thereafter that’s $125,000! If you pass on a portfolio of properties to you loved ones that has appreciated 10 million the reassessment would result in a staggering $1,250,000 over the following 10-year period etc!
• For many beneficiaries this is way too excessive and it’s forcing them to sell as a result of not being able to pay the steep additional County tax increases.
Additionally, we have discussions with many apartment building investors who are now considering selling but don’t want to due to the capital gains taxes they will incur. A 1031 exchange is a solution but trying to find a good replacement property these days is extremely difficult. Plus, we have witnessed over the years a trail of failed 1031’s that can’t be completed before the 45-day identification or sale deadlines, thus resulting in huge tax bills.
So, how can Apartment Owners transfer their holdings to their heirs without triggering a reassessment and without making their heirs responsible for a mountain of capital gains taxes?
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