Most of what gets sold as Prop 19 planning is expensive, aggressive, and worse for the family than doing nothing. I say that having reviewed a lot of it.
There are a handful of things genuinely worth doing while your parents are alive, and the first one costs a few hundred dollars and involves rewriting a single paragraph.
Start with the cheap, boring move
If one of the children is likely to live in the family home, the trust should direct that home to that child, specifically, rather than dumping it into a residue to be divided among everyone. A distribution clause that names the house and names the recipient keeps the parent-child exclusion available cleanly and avoids a scramble among siblings at the worst possible moment.
An amendment at this firm starts at $750. Against a property tax difference that can run five figures annually for decades, it is the highest return work I do.
The honest list of options
| Approach | The catch |
|---|---|
| Do nothing and budget for the higher tax | Boring, and correct more often than the industry admits |
| Name the occupying child as the recipient of the home | Requires the family to actually agree on who that is |
| Lifetime gift of the property to children | Triggers reassessment now, and destroys the step-up in basis |
| Sell during the parent's lifetime | Loses the step-up too, and the capital gains bill lands on the parent |
| LLC or other entity ownership | Entity transfers have their own change-in-ownership rules, real legal cost, and no guarantee |
| Life estates and similar arrangements | Fact specific, can complicate a sale badly, and needs real analysis before anyone signs |
The step-up trap
When someone dies owning appreciated property, the income tax basis resets to market value at death. A house bought for $95,000 and worth $1,400,000 passes to the children with a basis of $1,400,000, and they can sell the next month with almost no capital gains. Give that same house away during life and the children take the parent's original basis instead. They inherit a capital gains liability on more than a million dollars of appreciation to avoid a property tax increase measured in thousands per year. That trade is almost always terrible, and it is exactly what a lot of well-meaning families do to themselves.
What is worth checking right now
- Whether your parent currently receives the homeowners' exemption on the family home, which is a prerequisite for the family home rule
- The current assessed value and a realistic market value, so you know how much of the increase the $1,000,000 cap would actually absorb
- Whether the trust holds any rental property, since none of that qualifies and the family should know the number in advance
- Whether the trust names a specific recipient for the residence
- Whether the parent is 55 or older and might be better served by moving and transferring their base year value while they can
“I sat through one of the seminars. Free dinner in a private room off Sepulveda, a slide deck, and a structure being sold for a five-figure fee to people whose entire problem was a house worth less than the cap. Nobody in that room needed what was being sold. Two of them called me afterward and I told them to keep their money.”
Delia Vasquez-HartThe conversation with your parents
None of this works if nobody will discuss it. Adult children routinely put off this conversation for years, and the trigger ends up being a hospitalization, which is the worst possible setting for a decision about real property. It is also, not coincidentally, the setting in which undue influence claims are born.
Have it while everyone is healthy. Bring the tax bill. Ask a direct question about who is expected to live in the house, and be prepared for the answer to be nobody.
Questions we get asked
Should my parents put the house in my name now?
Almost never. It triggers reassessment immediately, loses the step-up in basis, exposes the house to your creditors and your divorce, and can affect your parents' eligibility for benefits.
Is there a deadline to do planning?
The planning has to happen while the parent has capacity to sign. That is the real deadline, and it arrives without warning.
Does a trust by itself avoid reassessment?
No. A revocable trust does not change ownership for property tax purposes during life, which is good, but it does not prevent reassessment at death when the transfer to a child occurs.
What if the family cannot agree on who gets the house?
Then plan for a sale and a division of proceeds, and tell everyone that is the plan now rather than letting it become a dispute later.
Next step
Get your parent's most recent property tax bill and their existing trust, and read the distribution paragraph out loud. If it does not name the house and a person, that is the amendment to book. Free 45-minute consultation at 9454 Wilshire Blvd, (310) 555-0219.