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Biddle Law Estate Planning Blog

Thursday, February 10, 2022

Can You Inherit Favorable Tax Treatment for Real Property?

One of the benefits of purchasing real property is the fact that it will likely appreciate in value over time. But can you imagine having to pay a substantial amount more in taxes just because your home value increases? Here’s the good news: you don’t have to. Under California’s Proposition 13, your appraised property value may only be increased by a small amount annually – unless the ownership of the property changes.

For instance, imagine that you purchased a home back in 1993 for 200,000 that is now worth $1.5 million. Your county tax assessor may not value your home at $1.5 for purposes of real property taxes. Rather, your home value will remain $200,000 plus 2% or a percentage equal to the consumer price index; whichever is the lesser of the two. Simply put, Proposition 13 saves you a lot of money.

Passing Along a Lower Tax Rate

When the homeowner passes away and his or her child inherits the property, the lower valuation of the property can be retained so long as the child files a parent-to-child exclusion form within three years from the death of the parent. If the child fails to do so, he or she will receive a supplemental assessment and be required to pay the higher tax amount for any years during which the exclusion had not been requested.

Who is Responsible for Filing the Exclusion Form?

So, who must file the parent-to-child exclusion form? It depends. If the real property is distributed in a Trust within a short number of months, it’s likely that the beneficiary of the trust must file it since the Trust no longer owns the property. But if the property takes years to pass or if the Trustee holds the property against the terms of the Trust, the Trustee would be responsible for filing the parent-to-child exclusion form.

It’s important to note that if all children have pre-deceased their parent and the real property instead passes from grandparent to grandchild, then the grandchild is entitled to the same exclusion. Yet, it’s still important to check with a qualified estate planning attorney.

Regardless of the timeline for when the property passes to child or grandchild, it’s imperative that someone files the exclusion form. If no one files it can result in the unnecessary loss of thousands of tax dollars.

Biddle Law Can Help

When you work so hard for all of your assets and want them to go to specific people and causes in a certain manner, you deserve to be able to do so. However, without a properly structured estate plan, you can actually create detrimental circumstances for your loved ones, rather than help them. This is why it’s so important to consult with a knowledgeable and experienced California estate planning attorney who knows the current laws and has experience dealing with such situations.

At Biddle Law, we are here to answer all of your questions and walk you through the estate planning and probate process. We care about your assets and your loved ones and want to help in any way we can. To learn more or to schedule a consultation, contact us today!


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