California property inheritance laws & taxes

[Sanbenito1]

The law concerning the inheritance of property in CA changed a few years back and I was wondering if anyone has gone through it recently? Situation: my sister owns a house and when she dies it is in her Trust that it will go to her long-term partner, who will continue living in the house (unless the property tax increases because the partner won’t be able to afford it). Question: since they are not married (and have no desire to be married after over 30 years together) will the partner experience a bump-up in property tax because they are not married, or is it enough to be named as the new owner in the trust? Under the old CA law heirs would continue under the property tax that existed under at the time of death, but that has changed.

 

[plsprius]

My understanding is that both capital gain step ups and CA Prop. 19 property tax benefits and limits apply generally to family members only.

So, I think your sister should consult the attorney who drafted her trust to make sure the future property transfer is done as tax-efficiently as possible.

 

[EastWest Gal]

There will be a major property tax change after her death. From what I read, it appears that only a family heir keep the original tax basis, and only if they live in the home.

OTOH, your sister's partner will be able to sell the home with a stepped up basis which will substantially reduce the capital gains tax. It will be important to get the home appraised after her death, assuming she dies before her partner does, so there is an accurate and legal appraisal of the value of the home, for estate purposes.

They could always choose to get married. Marriage is partially a business decision.

 

[isisdave]

Never ask a California estate attorney for advice about your friends on the Internet.

And vice versa.

Without knowing the details of the trust, no one here can offer any worthwhile advice. My guess would be that the attorney who set up the trust did so to achieve whatever goals your sister told him about. But it's just a guess.

 

[Dash man]

I’m not an attorney, but if the house is in a trust and the partner becomes the trustee after the the sister’s death, why would there be a change in ownership? The trust would still own the house.

 

[cathy63]

Yes, we are going through this right now with my MIL's property. The answer, as with pretty much everything involving legal docs, is "it depends".

Assuming the trust is an ordinary revocable living trust, the type that is commonly used for estate planning and avoiding probate in California, and the trust is the sole owner of her home, then:
1) the house gets a full step-up in basis when she passes. If someone who is not her spouse or registered domestic partner is a partial owner of the home, then the step-up in basis is only on the portion she owns.
2) if the heir is her spouse/rdp, then there will be no reassessment for property tax purposes whether or not the heir continues to live in the house.
3) if the heir is not related to her, then the property will be reassessed and the tax base will be set to the fair market value. The actual tax depends on what voter approved bonds and fixed charges there are in that city/county, but 1.1% is probably a good rough guess.

If the heir is your sister's child or grandchild, and that person will live in the house, then that person can get the tax on up to $1M of the increased tax base waived.