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What is the effect of Prop. 19?

On Behalf of | Mar 10, 2021 | estate planning | 0 comments

Estate planning involves more than writing a will and other necessary documents. The planning frequently entails looking at the larger picture, including tax implications. California residents may now need to review the rules regarding property inheritance. The recent passage of Prop. 19 brings about some changes.

The impact of Prop. 19 on estate planning

Proposition 19 passed as a voter-approved constitutional amendment that affects property taxes in several ways. For estate purposes, homeowners may choose to reassess their planning steps since children and grandchildren inheriting property could soon pay more in taxes.

Per the new statute, inherited homes “not used as principal residences” must undergo reassessment at market value when new owners take over. Reassessing the property could lead to higher tax rates. When engaged in estate planning, the testator may need to assist the beneficiary with paying the tax.

Perhaps the testator had initially intended to leave a sum of money to charity. A revision to the will could redirect some of that charitable donation to a second home recipient to cover the first year of increased taxes. Maybe the testator would opt to sell an expensive second home while living and put the money into another investment vehicle. Ultimately, there are many steps someone engaged in estate planning could take.

Discussing matters with the beneficiary might lead to a preferable solution. Thanks to adequate financial means, the beneficiary might not even worry much about the increased taxes.

Estate planning updates and revisions

Not everyone follows the news, so wills could go unchanged even after Prop. 19 becomes established law. Meeting with an attorney periodically to discuss possible updates and alterations to a will could lead to learning about relevant changes to state or federal tax liability. This information might motivate the testator to revise their estate plan.

Estate planning in California might now prove more involved than initially believed. An attorney could assist clients who wonder whether their current arrangements are appropriate.