Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Monday, August 20, 2018

California Homeowners Pass Low Property Taxes to Their Kids and is Highly Profitable to an Elite Group

BeachCalifornia is the only state to provide a tax break that extends the Proposition 13 advantages of strictly limiting property increases to inherited property, including income that is solely used for rental income. The extension was enacted 8 years ago and had the intention of helping adult children not lose their family home when their parents passed away. But instead of helping the middle class the law is allowing a wealthier class of citizens take greater advantage of their predecessors investments.

In Los Angeles County, as many as 63% of homes inherited under the system were used as second residences or rental properties last year, and the trend continues in other counties along the coast. And n Los Angeles County alone, the tax benefit cost schools, cities and county government more than $280 million in revenue last year. Proposition 13 and the inheritance tax law place no limits on how many levels of descendants may take advantage of the tax break, and the homeowner is not required to live in California.

The author of the law, Thomas Hannigan, did not predict this result 8 years ago. “I tried to do the right thing. Obviously, it had unintended consequences.

See Liam Dillon & Ben Poston, California Homeowners Get to Pass Low Property Taxes to Their Kids. It's Proved Highly Profitable to an Elite Group, Los Angeles Times, August 17, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2018/08/california-homeowners-pass-low-property-taxes-to-their-kids-and-is-highly-profitable-to-an-elite-gro.html

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Comments

Point taken, for sure. Highlighted by the Bridges case in LA County. But - this is in one county. All across the huge state of California, throughout all 58 counties, from what I have seen without any bias getting in the way, more middle and upper middle class people have taken advantage of Proposition 13 than rich folks, in aggregate numbers - Prop 13 and Prop 58 - avoiding property tax reassessment, enjoying the ability keep parents property taxes, to
transfer parents property taxes. There are more middle class folks inheriting property from parents, and inheriting property taxes obviously... in California, than millionaires. Hence, a lot more middle class and upper middle class people have been renting out property they have inherited from their parents... It's partially anecdotal evidence, from info researched in 57 counties other than Los Angeles county - speaking to people who lived in those counties, plus researching https://www.boe.ca.gov/proptaxes/proptax.htm the BOE official site... Plus informational non-biased Websites such as https://propertytaxtransfertrusts.com or hard nosed business sites that focus heavily on Proposition 58 and trust loans from trust lenders, to equalize liquidation provided to beneficiaries involved in estate conflicts as to whom will keep a property versus selling it as some beneficiaries prefer, like https://cloanc.com/category/prop-58 Etc, etc... but the main point is this issue of inheriting property and renting it out as a rich family vocation and not a middle class one - and I don't believe this is entirely accurate. I know it's a popular thing to believe, after looking at one county, in LA... But when you look at California as a whole I don't think the outcome is the same.

Posted by: Geoffrey Sadler | Apr 22, 2020 8:50:00 AM