Grandparent to Grandchild Exclusion

Yesterday’s focus was the parent to child exemption for re-assessment in California property taxes. This is a booming area of law as Counties are desperate for tax revenue and finding people who do not do all their tax forms right can be an easy way to make more money. The key with property taxes is it happens every year!  Thus it’s important to know your rights and make sure you file the right forms with the county assessor in the county where the property resides.

The parent to child exclusion applies to transfers from a parent to child.  The grandparent to grandchild exclusion is similar but applies to a transfer (at death or during life) from a grandparent to a grandchild WHERE THE GRANDCHILD’S PARENT IS DECEASED.  It’s very much like the IRS rule relating to the generation skipping transfer tax.  You look for a skip person to be deceased; i.e. the parent of the grandchild or child of the grandparent if you will.

This is very important to keep in mind when transfers are made from a grandparent to a grandchild of real property in California.  Make sure you file the proper form within 3 years of death OR BEFORE ANY TRANSFER!  If you sell to an outsider you lose the ability to preserve the property tax basis and can get hit with a wicked supplemental tax bill covering the time from the date of death through the date of sale.

Do not sleep on property taxes!

-John

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Parent to Child Exemption Form

Upon death or any other transfer of real estate in California you need to evaluate if a PT-58 form is required. It is the document which tells the county assessor that a transfer has been made, of real property, between a parent and a child.  This will preserve the parent’s property tax assessment or basis.  This is also known as the “prop 13 basis.”  Likewise if a transfer is between a grandparent and a grandchild a similar exclusion is available in some cases.  This should be done within 3 years of the transfer and always done BEFORE any sale or transfer to an outsider. This is imperative!  Failure to file this with the county assessor in the appropriate county will create unnecessary property taxes now and into the future.

The rules allow the transfer of the personal residence AND $1,000,000 of other property at it’s assessed value.

There can certainly be value in hiring a professional to assist with this as it is easy to mess up!

Contact me to discus your parent-child and grandparent-grandchild transfers!

-John

Prop 13 and Property Taxes

Most Californians known about the famous “Prop 13.”  Just google “Prop 13″ without specifying California and it will come up very high in your search I am sure! It’s the 1978 statewide proposition that established California’s modern day property tax system.  It set a ceiling on property tax based on your assessed value in 1975 (a 1% tax on that value) and allowed for increases of up to 2% a year. Of course value increased a lot more than 2% a year in many years since 1975!  Thus there are people with multi-million dollar homes paying $800 a year in tax. The biggest problem comes up when a person dies and their child (or grandchild) wants to continue living in that multi-million dollar home but can’t even afford the property tax if they were paying what their neighbors were paying.

I should state that this law benefits a lot of people with less than multi-million dollar homes and the above is merely to show the reader how the law works in an extreme example.

The problem at death is that mom and dad may be paying $800 a year but if daughter wants to keep living in that house her property tax should be $800 a month… or MORE!  Thus, in 1986 they came up with the PARENT TO CHILD EXCLUSION.  In simple terms this allows a parent to pass their property tax basis to their child. This is totally separate from income, estate and gift taxes which are discussed in other posts. In the case of property taxes the goal is to pass on the same property tax base so that the child can continue paying the low property taxes.

The law was written so that a parent can pass their primary residence (amazing how many beach front properties become “primary residences” shortly before death) AND $1,000,000 of other property, at the assessed value, to the child without change in property tax. Again, this has absolutely nothing to do with income, gift or estate tax so don’t confuse them. This is strictly limited to California property taxes. Of course, property taxes are annual so if the child is planning to keep mom’s house this is a very important tax to plan for!

In simple transfers the key is filing the proper form (PS-58) within 3 years of death (or transfer if done before death). However, many counties now impose a fee if you don’t file within a certain number of days after receiving the notice from the county assessor.

The key here is this is a complex tax system and the tax hungry state government is looking carefully at every real estate transfer for a slip-up.  Thus it is imperative that you work with a qualified California probate and estate planning attorney who understands the California property tax system and the complexity created by prop 13, prop 58 and prop 193 among other things.

Contact me with your California real property questions!  -John