Real Estate News and Highlights

Jan. 28, 2021

URGENT PROP 19 STRATEGIES

 

 

UNDERSTANDING PROPOSITION 19 AND THE URGENCY TO ACT NOW TO PROTECT YOUR FAMILY ESTATES

 

 

 

As many of you are aware, Prop 19 will be going into effect on February 16th and it may have an enormous effect on your Estate Planning as it stands now. 

 

If your attorney has not reviewed your Trust as of late, PLEASE have that done IMMEDIATELY!  

 

Deadline for any changes that are needed to adjust for the new Prop 19 must be done prior to 2/12/2021.

 

DISCLOSURE: I AM NOT AN ATTORNEY, NOR AM I PRETENDING TO BE ONE. NOR DO I EVER WANT TO BE ONE.  THE SOLE PURPOSE OF THIS EMAIL IS TO ADVISE YOU TO TALK TO YOUR TRUST ATTORNEY / ESTATE PLANNER.  I AM ONLY HERE TO SHARE WITH YOU WHAT I HAVE LEARNED ON PROP 19 THROUGH MY AMAZING TITLE TEAM AND THEIR TRUSTED ESTATE ATTORNEYS.  PLEASE CROSS CHECK EVERYTHING BELOW WITH YOUR ATTORNEY OF CHOICE AND HAVE THEM GUIDE YOU ON THE BEST PATH FOR YOU AND YOUR FAMILY. . 

 

PROP 19

 

As I am sure you are aware, PROP 19 has 2 parts to it.  This first one is great and I think it will really make a lot of people that are 55+ very happy!

 

Part 1: (Effective date 4/16/2021)   

AGE 55 AND OLDER TRANSFER OF PROPERTY TAX TO A NEW HOME:

If you are 55+ years of age and want to sell your home and buy a new one, you can transfer your current property tax over to the new home that is equal or GREATER  in value anywhere within California. And now you can do it 3 times in your life!  Prop 19 will definitely help homeowners get out of their current homes that do not fit their needs anymore, all while avoiding a huge increase in the new property tax on their new home!    This will also help open up a lot more inventory for those buyers that have been desperately searching for their next home.   

Keep in mind, it won't be an even exchange if the new property is of greater value.  You will have a new assessed value calculated based off of the assessed value of your current home, the sales price of the current home and the difference in price of the new home.  Sounds confusing?  It's really not!  Check it out...

 

EXAMPLE:

Current home has an assessed value of $200,000. 

You sell the current home for $700,000 and buy a new home for $800,000.  A $100,000 difference in price.

You take the assessed value of $200,000 and add that to the difference of the sales price and purchase price of $100,000.

Your new assessed value is $300,000.   

 

 

PART 2: Effective date 2/16/2021  

 

TRANSFER OF PROPERTY TAX OF THE PARENTS PRIMARY RESIDENCE TO CHILD.  

Once a parent has passed on, their primary residence and its current property tax can be transferred over to their child as long as the child moves into the home and makes it their primary home in no less than a year.  

Which at that point, the FAIR MARKET VALUE of the home will be assessed and the NEW BASE YEAR VALUE will be applied. 

How it's calculated:

  1.  Take the assessed value of the property at the time of death and add the $1 Million dollar credit to it.
  2.  Get an official appraisal to calculate the Fair Market Value.
  3. If the FMV is less than the assessed value + the $1 Million credit, the property tax stays the same.  It does not increase in assessment. 

If the FMV is greater than the assessed value, the property tax will get adjusted upward. 

 

Example:

Parents bought the house for $400,000 (assessed value at T.O.D)

Add $1,000,000 to that amount = $1,400,000.

The appraisal came in under the FMV, therefore it will not increase in assessment. 

 

If the FMV comes in at $2,000,000, that will give you a $600,000 difference.

$600,000 is the new assessed value and then you add the original assessed value of $400,000.  

Giving you a new base year value of $1,000,000.  A $10,000/ year tax payment.

If the child does not move in, the home gets reassessed at $2M, the kid would have to pay $20K in property tax if they do not sell the home shortly after their parents pass.

 

Parents, you must talk to your children now and find out if they want to move into the home and keep it as their primary residence.  

If they wait on selling the home and the kids get the supplemental assessment in the mail, it will be at the NEW assessed value and the kids will be responsible for having to pay that money.

They must be made aware that they must sell the home prior to the new supplementary assessment being sent out!

THIS WILL APPLY FOR ALL FAMILY ESTATES including, but not limited to, vacation homes, commercial and income properties.  Although, only the primary residence will be able to apply for the tax transfer. 

 

Do a cost benefit analysis on all of your property tax, income tax, capital gains tax and inheritance tax ASAP.

Ask yourself the following:

Do you own the property outright?  Or very little owed?

If it's an income property, do you want to keep the income on it currently. 

Are the kids planning on selling the home immediately after you pass away?  

If you answered yes to all of the above, then there is no reason to have to do anything other than to make sure your Trust states all the children you want in the trust and if multiple it may be best to state that they are 'Tenants in Common'.

 

I know you probably have your properties set up in LLC's and family partnerships already, but in case you need to make any changes to your estate planning, do it prior to 2/11/2021. 

  • Discuss with your attorney your Estate Tax Law
  • Discuss the benefits of an Irrevocable Children's Trust with a G.S.T.  
  • Discuss the difference of having the children state they are 'TENANTS IN COMMON' vs a 'JOINT TENANCY'.

If you want to transfer any property to your kids right now, it has been advised that one does not transfer the property OUT RIGHT (it is a tax trap) nor do a quit claim deed.  Ask your attorney why.

 

GIFTS: It is a gift if the kid did not buy the estate.  A gift tax will apply and the parents are using up their lifetime inheritance tax.  Parents must file a 709 return, have it appraised and document how much they have used up. 

Gift tax is up 40% and has penalties and interest accruing the moment the deed is signed.  Estate tax law had a lifetime cap of $11M, but it is said that it will now go down to $3.5M. 

 

Capital Gains Tax is said to be going up as well.  So if the kids are gifted a property, they will keep the low assessed value, but when they sell it, they will get hit with a huge capital gains tax.  You may be better off keeping the property till the inevitable end, have the kids inherit it and avoid the capital gains, if sold at the new current value.

Parents must come together with their kids and ask if the capital gains tax is a much bigger number than the property tax number.  Most likely it will be HUGE. 

   

 

A few last things to consider:

  • When talking with your attorney, be advised that if you are to do a QPRT, it will definitely trigger a reassessment. 
  • If you consider doing an IDGT (which has a swap power clause in it), please make sure you have a highly qualified attorney to do so.  It is highly complex.  You have to do it one way for the IRS State Taxes, another way for the Income Taxes and watch out for property tax.
  • It is always advised that upon a Transfer of Survivor or inheriting a property do a STEPPED UP IN BASIS for the property's current value and file a 706 Return with the IRS. That will bring the property value up to its current value and it will keep you from having to pay the capital gains on the property at the assessed value when it was originally purchased.  

 

Therefore, Please talk to your trust attorney NOW and have them review your trust and make any necessary changes before February 16th!  MAKE SURE your attorney is extremely knowledgeable on both trust and estate planning along with real estate law and business law.  Do not be afraid to ask how many clients he/she has in each department and what price point said clients are in and talk to them about setting up an LLC and family partnerships.  Most importantly, definitely do not forget to state on your trust that you are specifically requesting that your amazing Realtor, Lisa Moule, is to handle the sale of all your properties!    

 

I HOPE ALL OF THIS HELPS!  But most of all, I hope that you already have all your little duckies in order and found my long winded breakdown of prop 19 to be of knowledge already!  Better safe than sorry when it comes to the ones I love and care for.   I will keep you updated on this Prop 19, should I see future changes to it. 

 

DISCLOSURE: I AM NOT AN ATTORNEY, NOR AM I PRETENDING TO BE ONE. NOR DO I EVER WANT TO BE ONE.  THE SOLE PURPOSE OF THIS EMAIL IS TO ADVISE YOU TO TALK TO YOUR TRUST ATTORNEY / ESTATE PLANNER.  I AM ONLY HERE TO SHARE WITH YOU WHAT I HAVE LEARNED ON PROP 19 THROUGH MY AMAZING TITLE TEAM AND THEIR TRUSTED ESTATE ATTORNEYS.  PLEASE CROSS CHECK EVERYTHING BELOW WITH YOUR ATTORNEY OF CHOICE AND HAVE THEM GUIDE YOU ON THE BEST PATH FOR YOU AND YOUR FAMILY. . 

 

 

All the best,

 

       

Lisa Moule 

Awarded Top Producing Agent of 2019 

 

       

     

   

310-428-8958

Follow Me On Facebook

BRE # 01870856E 

 

      

Feb. 2, 2017

Relax And Indulge On Redondo Beach Real Estate

Search homes in Redondo Beach real estateAfter day spent on the shores of spectacular Redondo Beach real estate, wind down at Friends Of The Vine. A laid back yet sophisticated ambiance welcomes all at this combination wine bar and boutique. Here it’s all about the art of wine tasting. Connoisseurs and novices alike will enjoy an extensive selection of wines.

Get to know your individual palette. Guests can sip samples, half glasses, and full glasses of whites, reds, and sparkling wines. Flavors vary from robust to light and everything in between. Wine flights present combinations of different wines that go well together. Flights are recommended for those who are interested in trying new tastes. Friendly recommendations are given on what goes well together. Expert hosts freely discuss varying flavors, and the characteristics offered by select regions and types of grapes.

Meet With Friends Near Redondo Beach Homes

As in the bar, wines are plentiful in the boutique. An eclectic collection of international and local wines are on hand to enjoy back at Redondo Beach homes. The shop stocks charming glasses and wine related trinkets too. These make great gifts for friends or even treating oneself. Friends Of The Vine welcome all Tuesday through Thursday from 4 to 11 p.m., and 4 p.m. to 12:30 a.m. on Friday and Saturday.

Whether at the end of the day or beginning of a night on the town a glass of high quality wine can set the right mood. Locals from Redondo Beach homes often originate here before heading out to dinner at nearby restaurants with friends or taking in an incredible sunset with a loved one at the Redondo Beach Pier.

 

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