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There is much to consider when planning how best to pass assets to heirs, including potential tax consequences on the transferred assets. For the time being, 2021 federal gift and estate tax exemptions remain at an all-time high ($11.7 million per individual and $23.4 million for a married couple), allowing a large portion of transferred wealth to be excluded from taxation. Further, for Californians there is no additional state inheritance tax, which also helps to reduce the tax burden. With proper estate planning, most assets (excluding retirement accounts) still receive a step-up in basis for income tax purposes when both the first and second spouse die. In addition, many people have established and funded revocable living trusts with primary residences, rental properties, and vacation homes so that these assets may be transferred to heirs without the hassle and costs of probate administration.

Modern mediterranean style house in Los Angeles

In addition, many people have established and funded revocable living trusts with primary residences, rental properties, and vacation homes so that these assets may be transferred to heirs without the hassle and costs of probate administration.

So, while many individuals have covered their bases when it comes to minimizing taxes and costs for their heirs when they die, Proposition 19 — approved by California voters in November 2020 — has made significant changes to property taxes that can be imposed when California real property is gifted during lifetime or at death. With property values in parts of California being some of the highest in the country, each owner of real estate should be aware of the new property tax rules and how Prop 19 has impacted leaving one’s home or other real estate to children or grandchildren.

The Golden Age: Proposition 13 and Other Property Tax Exclusion Provisions

In 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative that defined how property taxes were calculated and assessed. Under Prop 13, most property tax values were rolled back and frozen at their 1975 assessed values. Property tax increases were limited to no more than 2% per year as long as a “change in ownership” did not occur. A change in ownership would cause the property tax to be reassessed at 1% of the current value with a 2% yearly cap that would become applicable to future years.

While many Californians are familiar with Prop 13, some homeowners may need to be better educated on Prop 19, including (1) the current status of California property laws following the enactment of Prop 19; (2) the exclusions that remain under the change in ownership rules; and (3) what opportunities still exist to avoid unwanted property tax increases.

First, certain property tax exclusions remain after the passing of Prop 19. Some of the more common exclusions from property tax reassessment include:

  1. Transfers of property to a spouse or domestic partner;
  2. Transfers resulting from a divorce;
  3. Transfers by an owner of a primary residence who is over 55 years of age, severely disabled, or a victim of a wildfire or natural disaster. Such owners may transfer the base year value of their original primary residence to a replacement primary residence located anywhere in California that is purchased or newly constructed within two years of the sale of the original primary residence. Each spouse may transfer a base year value up to three times;1 and
  4. Transfers purely to change the method of holding a property title if the proportional interests remain the same. For example, transfers of property to a revocable trust or transfers to a legal entity in which the proportional interests of both the transferors and transferees remains exactly the same before and after the transfer.

In addition, a change in ownership of real property owned by a legal entity resulting in a reassessment of the real property only occurs upon either of the following two transfer events:

  1. When a person through the purchase or other transfer of ownership interests in an entity obtains control of more than 50% of the interests in the legal entity. This type of transfer is referred to as a change in control;2 and
  2. When there has been a cumulative transfer of more than 50% of the original co-owners’ interests. This type of transfer is referred to as a change in ownership.3

Limited Reassessment Exclusion for Primary Residences

While some beneficial exclusions remain in place, the popular exclusion from property tax reassessment that involved transfers of property from parent to child or child to parent and in certain instances transfers from grandparent to grandchild has been virtually eliminated by the passage of Prop 19. In the post-Prop 19 era, any property other than a primary residence gifted or bequeathed to a child will be reassessed to fair market value as of the date of the transfer.

The taxable value of all properties transferred from parent to child and grandparent to a qualifying grandchild will be reassessed to fair market value unless a child or qualifying grandchild moves into the primary residence of the transferor and uses the home as their primary residence. In the event a child or grandchild does make the inherited property their primary residence and the fair market value of the transferred property exceeds the tax-assessed value by more than $1,000,000, Prop 19 provides a reduction of $1,000,000 on the newly assessed value — the equivalent of an annual savings of approximately $10,000 in property taxes ($1,000,000 assessed value exclusion x 1% property tax rate).

Remaining Planning Opportunities

Despite these changes, there are several situations that still present opportunities to minimize property tax reassessments using the applicable exclusions. The following scenarios demonstrate how to make the most of the current rules.

  • Transfers of Base Value for Those Over 55

Celia bought a $2,000,000 condo in Santa Barbara County in October 2020 and planned to move there and make it her primary residence after she sold her home of 30 years in Palo Alto (located in Santa Clara County). Her Palo Alto home has an assessed value of $300,000 and a current value of $2,500,000. She has not yet sold her home. Since Santa Barbara County did not have an intercounty ordinance that allowed the base year value of a property in one county to be transferred to a property in another county, Celia had been prepared to pay higher property taxes on her new condo. However, now that Prop 19 has passed, Celia can sell her Palo Alto property and transfer her base year value to her Santa Barbara condo.

  • Proportional Transfer Rule and Less Than 50% of Original Owner Transfer Rule

Ted (30% owner), Carol (30% owner), and Alice (40% owner) formed a partnership and contributed their respective ownership interests in a property to the partnership for their same proportional partnership interests (30/30/40) without triggering a reassessment. At a future date, Ted and Carol can each purchase one-half of Alice’s 40% partnership interest and since less than 50% of the original co-owners’ interests were transferred, under the original co-owner rule, there is still no reassessment of the property.

At a future date, Ted and Carol can each purchase one-half of Alice’s 40% partnership interest and since less than 50% of the original co-owners’ interests were transferred, under the original co-owner rule, there is still no reassessment of the property.

  • Legal Entity Exception

Steve and Helen have decided to form an LLC. They will use the LLC to purchase an apartment building in San Francisco. Steve and Helen can gift or bequeath their interest in the LLC in equal shares to their two children. As long as no one person or entity gets more than 50% control of the entity, the property owned by the LLC will not be reassessed.

Be Proactive and Seek Advice

A word of caution: these techniques for avoiding reassessment must be handled very carefully. It’s advisable to get expert advice on how to proceed and how to ensure proper documentation and substantiation is filed with the county assessor in a timely manner. However, if done correctly, lower property tax bases can be maintained and over time tens of thousands of dollars saved.

For those owning property in states other than California, the laws of the state in which the property is located will dictate the methods and circumstances by which property taxes are assessed and reassessed. These laws should be reviewed and understood before buying, selling, or gifting property.

If you are considering an acquisition or transfer of property, it is wise to be proactive and seek good advice ahead of time. To learn more about property tax reassessments and applicable exclusions, please contact your tax professional or your Cerity Partners advisor.


1 Prior to the passage of Prop 19, a base year value transfer could be made in (1) the same county or (2) in a county with an intercounty ordinance (10 counties) and could only be done once with the exception that after transferring the base year value once for age, a person could transfer the value a second time for a subsequent disability.

2 California Legislative Information, Revenue and Taxation Code Section 64(c),

3 California Legislative Information, Revenue and Taxation Code Section 64(d),

Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Florida, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal tax, legal, or investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.

Meet the Author

Judith Gordon


Judy is a Principal based in the Silicon Valley office. She provides consulting advice for private clients and advisors on estate planning, wealth-transfer strategies, d trust and estate administration, and charitable planning. With her extensive law background, Judy works collaboratively with clients and their tax advisors and estate planning attorneys to ensure that their strategies are consistent with their overall financial and estate plans and to manage, preserve, and grow their wealth for their family and philanthropic goals.

Prior to joining Cerity Partners, Judy worked as an Estate Planning Advisor at B|O|S and served as a member of the Financial Planning Team. In this role, Judy helped clients navigate significant life changes, minimize their tax burden, and identify goals and strategies for legacy planning. Prior to joining B|O|S, she enjoyed a 35-year legal career in sophisticated gift and  estate tax planning, charitable planning, and probate and trust administration.

Judy earned her Bachelor of Arts in Psychology from the University of Florida and her Juris Doctor degree from Georgetown University. She also received her Master of Laws from New York University.

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