The Importance of Filing Property Tax Exemptions and Establishing Asset Protection Trusts
CARLSBAD, Calif., Nov. 3, 2022 /PRNewswire/ — In November 2020, California voters passed Proposition 19 which affected property tax transfers and exemptions. One aspect of Proposition 19 limits children inheriting their parents’ property from keeping the low property tax base unless they use the home as their primary residence.
In light of Prop 19, Carlsbad estate planning attorney Andy Fesler advises families on how to file property tax exemptions to mitigate tax increases and financially protect children inheriting property from their parents.
According to Fesler, many Californians are aware of the Proposition but don’t always understand how it works. Fesler wants to help folks understand that under Prop 19, once the parents pass away, the county recorder or assessor can reassess the property to the current value for property tax purposes, unless it is proven that the child lives in the house and qualifies for a parent/child exemption.
As a result, many adult children, after their parents pass away, are moving back into their parents’ homes because it allows them to significantly reduce property taxes, compared to what they might be paying on their current house.
Fesler explains that sometimes, as a result of this move, “People might go from paying $10,000.00 or more in property taxes on a house with a mortgage to just $1,000.00 on a house that’s already paid off.”
As an example, Fesler shares, “I have clients where the parents are in their 70s and they know their house is currently assessed somewhere around $200,000.00. They know that when they pass away, the home is going to be reassessed at around 2 million dollars, which means their property taxes are going to increase 10-fold. Children inheriting their parents’ home don’t expect to get priced out of it by property tax increases.”
To avoid reassessment and astronomical tax increases, children must file a homeowner’s and parent/child exemption form with the assessor within 1 and 3 years, respectively.
Fesler encourages children inheriting property to work with an estate planning attorney to ensure they file on time and make the correct exemption claim on the form.
Working with an estate planning attorney is especially important for families who have multiple siblings inheriting property where one sibling wants to live in the house. In order to preserve the parents’ property tax base for a child wishing to stay in the house, the parents’ estate and children’s trusts need to allow for non-pro-rata distributions to each child.
Fesler cautions, “If you do the transfers wrong, you could lose two-thirds of the tax savings.”
ASSET PROTECTION TRUSTS
Another way Fesler helps clients financially protect children inheriting assets from parents is by establishing asset protection trusts. Many clients believe their children will be protected simply because they established a trust, but that’s not always true.
If adult children put inherited assets into a joint account with their spouse, and later divorce, those assets would be split between the child and their divorcing spouse. However, an asset protection trust safeguards the inheritance. Some clients establish a continuing asset protection trust to ensure assets stay in the family. These trusts can also protect children and grandchildren from their own spending habits by having a third-party trustee until they reach a certain age.
Fesler takes a client-centric approach to estate planning and believes each client deserves quality, thoughtful, and individualized service.
For help filing property tax exemptions in California, establishing asset protection trusts, or any other Carlsbad estate planning needs, visit the Law Office of Andrew Fesler at www.carlsbadestateplanning.com.
Name: Chris Moreno
SOURCE Carlsbad Estate Planning