(Editor’s note: The following article was co-written with Martha Bridegam, an attorney with the firm.)

Finding purpose is what it’s all about as we age. All of us have the potential to become powerful storytellers and information sharers as we age because we have more life to share and more advice to impart. As we reflect about our lives, 2020 will probably be remembered as one of the most tumultuous, dramatic years we have lived through.

Reciprocity, especially sharing gifts, is at the heart of what I have learned about being Japanese American.

Since I am an estate planning attorney, I would like to share some news about Proposition 19, a state constitutional amendment passed by California voters in November, with broad effects that estate planners are still working to understand and address.

The Board of Equalization has posted a helpful summary at www.boe.ca.gov/prop19 with a link to the new law. Regulations applying the law have not yet appeared, but here is some of what we know so far, offered as general information, not legal advice:
Prop. 19 does not change how Proposition 13 affects currently owned California real estate. As before, local property tax assessments are preserved for existing owners, with only small yearly increases.

However, Prop. 19 will change how and when current property owners may transfer their tax assessments. This measure was heavily backed by the California Association of Realtors and it promotes more frequent property sales in two ways — one that helps individual property owners’ own flexibility, and one that limits their ability to share family wealth:

More kinds of transfers between places. Starting April 1, 2021, homeowners who are over age 55, or “severely disabled,” or had property damaged in wildfires, will be allowed to move their existing tax assessment to a new home bought, built or rebuilt anywhere in California. Each homeowner may do this up to three times, each time with a new assessment applying only for any increase in the market value of the new home over the old one.

Fewer kinds of transfers between people. Starting Feb. 16, 2021, many transfers between parents and children will no longer qualify for Prop. 58 exemption from reassessment: the transferee will not get to keep the transferor’s existing property tax assessment unless two things are both true: the property is the transferor’s personal residence, and the property also is (or becomes) the transferee’s personal residence after the transfer. This remaining property tax advantage will be limited to the amount of the transferor’s tax assessment plus $1 million more of current market value. The same applies to limit the protections of Prop. 193 for grandparents and orphaned grandchildren.

Here are some implications of the limit on parent-child transfers:

• If a parent has a $500,000 assessment on a house now worth $1.6 million, and their child inherits the same house and also decides to live there after the death, the child keeps the old tax on the first $1.5 million (the $500,000 plus $1 million more) but the extra $100,000 is added to the assessment, for a small increase in yearly property tax.

• If a parent owns two houses, lives in one and allows their child to live in the other, a gift or bequest to the child of the child’s own residence will be subject to reassessment because it was not also the parent’s residence.

• If two children inherit a parent’s home equally but just one lives in it after inheritance, half the value is reassessed. (This is a good reason to do estate planning with the beneficiaries’ individual plans in mind).

Some of the problems suggested here can be reduced through estate plan changes or other steps. However, not every estate plan will need a change, and hasty choices may be worse than none.

Some owners of California real estate may want to make family gifts of property or change their estate plans before Feb. 16, 2021. (The effective deadline is several days sooner because of weekends and holidays.) By making property transfers quickly, parents may be able to lock in existing tax assessments with a gift to a child of a family home where the child does not plan to live, and/or limited gifts of investment properties other than a family home.

But before deciding to make a quick gift, families should consider that a child who receives a parent’s gift of property during the parent’s lifetime will not get a basis step-up for federal capital gains tax purposes at the parent’s death. If a child receives property as a gift from a living parent and later sells it, the capital gains tax may be much higher than if the child inherited the property at the parent’s death. A child who inherits a house at a parent’s death gets a full step-up in tax basis, which means that if the child sells the house, capital gains tax will apply, at most, to the difference between the sale price and the value as of the parent’s death.

If you own or plan to own property in California, you may or may not have reason to change your plans, but you’ll want to understand what Prop. 19 is and what it does. Again, this article is only general information, not legal advice, and individual situations may vary.

Laurie Shigekuni is the owner of Laurie Shigekuni & Associates, a law firm doing estate planning, probate and trust administration. Her primary office is in San Francisco, and she has satellite offices in San Mateo County and Pasadena. Contact information is: www.calestateplanning.com, contact@ calestateplanning.com, (415) 584-4550, (800) 417-5250. The views expressed in the preceding commentary are not those of the Nichi Bei Weekly.