For California homeowners and families thinking about passing down real estate, Proposition 19 has dramatically changed the rules of the game. This voter-approved measure, which went into effect in 2021, significantly altered how property tax reassessments work — especially when transferring a home to children or grandchildren.
At Allenby Law, we specialize in estate planning that’s not only legally sound, but also simplified for our clients. We’ll break down what Proposition 19 really means, how it impacts property transfers within families, and what strategies you can use to preserve your legacy in a smart way.
What Was the Law Before Proposition 19?
Before Proposition 19, California homeowners benefited from a set of rules under Propositions 13 and 58 that kept property taxes low when transferring real estate within families.
Key Highlights of the Previous Law:
- Prop 13 (1978): Locked property tax assessments to the home’s original purchase price, with only minor yearly increases.
- Prop 58 (1986): Allowed parents to transfer a primary residence to children (and in some cases, other real property) without reassessment—keeping the low Prop 13 tax base intact.
This meant that if your parents bought a home in the 1970s for $100,000, and it’s worth $1.5 million today, you could inherit the home and continue paying taxes on the original assessed value of $100,000 (plus modest annual increases), saving thousands each year.
What Changed Under Proposition 19?
Proposition 19, passed by California voters in November 2020, eliminated many of these protections.
Major Changes Under Prop 19:
- Limits on Parent-to-Child Exclusion:
- Now, only the transfer of a primary residence is eligible for exclusion from reassessment.
- The child must use the home as their primary residence within one year of the transfer.
- Even then, the exclusion is limited to $1 million in assessed value. Anything over that may be reassessed.
- Elimination of Exclusion for Other Properties:
- Previously, parents could transfer up to $1 million in assessed value of other real estate (such as rental property or vacation homes) to children without reassessment. This exclusion is now entirely eliminated.
- Expanded Benefits for Seniors and the Disabled:
- Homeowners over 55, those with disabilities, and victims of natural disasters can now transfer their tax base to a new home up to three times (previously it was once and only within the same county or limited counties).
While the expansion of base transfer rules is beneficial for some seniors, the severe restrictions on family transfers have raised major concerns for families trying to preserve generational wealth.
A Closer Look: Primary Residence Transfer Limitations
Under Prop 19, transferring a primary residence from parent to child without full reassessment depends on the fair market value at the time of transfer and the original assessed value.
Example:
- Original Assessed Value (Prop 13): $500,000
- Fair Market Value at Transfer: $2 million
- Prop 19 Rule: First $1 million over the original assessed value is excluded from reassessment
- New Taxable Value: $2 million – $1 million exclusion = $1 million reassessed portion + original $500,000 = $1.5 million taxable value
This results in a significantly higher property tax bill than under the previous rules — which would have preserved the $500,000 base.
Who Is Most Affected by Prop 19?
1. Middle-Class Families with Long-Held Homes
Families who bought their homes decades ago, especially in expensive areas like San Diego, Los Angeles, or the Bay Area, are hit hardest. Their heirs now face large property tax increases if they want to keep the home.
2. Owners of Rental or Vacation Properties
The elimination of the $1 million exclusion for non-primary residences means rental properties and second homes are now fully reassessed at current market value when transferred to children — even if held in trusts or LLCs.
Planning Strategies to Minimize the Impact of Prop 19
If you’re concerned about how Prop 19 affects your estate, the good news is that smart planning can still protect your assets and reduce future tax exposure.
1. Use of Irrevocable Trusts
Irrevocable trusts can remove the asset from your taxable estate and potentially avoid reassessment, depending on how the trust is structured and administered. However, recent changes and Prop 19’s reach mean careful legal drafting is required.
- Qualified Personal Residence Trusts (QPRTs): Allow you to gift your home at a reduced value while continuing to live in it for a set number of years.
- Intentionally Defective Grantor Trusts (IDGTs): Often used to freeze asset values and pass appreciation tax-efficiently.
These tools require precise timing and legal expertise.
2. Gifting the Property During Lifetime
Parents can choose to gift the property during their lifetime, but this comes with trade-offs:
- May avoid Prop 19 reassessment, depending on structure.
- Triggers capital gains implications due to loss of step-up in basis.
- Risks loss of control over the property.
This approach only makes sense in select cases and must be considered carefully with a tax advisor and estate planning attorney.
3. Establishing a Family Limited Partnership (FLP) or LLC
Transferring ownership of rental properties into an FLP or LLC can be a strategy to gradually gift interests in the business (not directly in the property). While Prop 19 has narrowed the reassessment loopholes, these structures still offer control and potential tax benefits when planned properly.
4. Timing the Transfer Smartly
For parents over 55, it might be advantageous to sell the primary residence and transfer the tax base to a replacement property under Prop 19’s expanded portability provisions — allowing for downsizing or relocation while preserving the low tax base.
What This Means for Estate Planning in California
Prop 19 has reshaped the California estate planning landscape. Whereas once families could rely on tax-free inheritance of real estate, today’s reality demands proactive legal and financial planning.
These changes underscore the importance of working with professionals who understand not just the law, but how to navigate it strategically — especially in a high-cost real estate market like San Diego.
How we can help
At Allenby Law, we make estate planning smarter and simpler. Our team understands the nuances of Proposition 19 and how it interacts with your family’s long-term goals.
We offer tailored strategies to help:
- Preserve property tax assessments
- Structure real estate and trust arrangements
- Reduce exposure to reassessment and capital gains
- Keep your family’s legacy protected across generations
Whether you want to transfer a home to your children, restructure rental property ownership, or revise your estate plan post-Prop 19, we’re here to guide you through the process — with clarity, simplicity, and smart legal insight.
Contact Allenby Law today for a personalized consultation and let’s create a plan that protects your family’s future.
