KEEPING INHERITED PROPERTY TAXES LOW

My wife and I have worked hard to build a little nest egg and we’d like our kids to be able to benefit from it as much as possible… AFTER we’re gone!

The reality is that one day my wife and I will both be dead and the kids will hopefully inherit some property from us. Current Fed and California laws are very favorable to heirs. As of 2019, my kids should be able to inherit up to $22.8M from us tax free; they will get nowhere near that amount – sorry kids! You don’t want to give the kids an incentive to rush things along, so it’s best to keep your estate modest in size. The $22.8M is subject to change overtime as tax laws expire or are altered.

In addition to the big inheritance tax exemption, under California Prop 58 my kids get the family home with the same low property tax base my wife and I enjoy since we bought it so long ago; we bough it from a lovely Neanderthal family. However, the ability to keep the low property tax base is not automatic.

When parents pass away there will be lots of paperwork to be filed with different government agencies. An Affidavit of Death along with a death certificate should be filed with the county assessor.  Another very important form that needs to filed is the CLAIM FOR REASSESSMENT EXCLUSION FOR TRANSFER BETWEEN PARENT AND CHILD if you want to lock in the existing property taxes. There are strict time guidelines for filing this paperwork. 

Schedule for Filing Exclusion

  • A claim form is timely filed if it is filed within three years after the date of purchase or transfer, or prior to the transfer of the real property to a third party, whichever is earlier.
  • If a claim form has not been filed by the date specified in the preceding sentence, it will be timely if filed within six months after the date of mailing of a notice of supplemental or escape assessment for this property.

If the exclusion is not timely filed, then the estate could be reassessed ti current market value and stuck with a property tax bill that could be tens of of thousands of dollars higher. Typically, if you have an attorney involved with settling your estate, then they will file the Affidavit of Death plus the exclusion forms. Ask for proof from the assessor that the paperwork was filed. I know of cases where the paperwork was submitted, the assessor later claims they never got it and then you’re left battling the assessor. If you’re selling the inherited family home, you may also want to ask escrow to verify that the assessor has a Prop 58 exclusion form filed before you transfer title.

I will write a follow up post discussing how this property tax reassessment exclusion (Prop 58) could possibly be going away if you inherit property that is either a rental or becomes a rental. Finally, ignore the picture above, don’t solely use a Will to bequeath substantial possessions, you should probably get your assets into a Trust.

I highly recommend consulting an attorney and accountant when dealing with estates.

Link to San Mateo County exclusion webpage: Link