Proposition 19 and the Family Home: A Lifestyle and Tax Planning Decision (Part 1)

Introduction

Over the past several months, I've attended numerous conferences and collaborative events with estate planning attorneys, financial advisors, and professional fiduciaries to better understand how California's Proposition 19 is reshaping real property transfers across generations. Among all the issues discussed, the one that resonates most with families is this: what should we do with the family home?

This article explores how Proposition 19 affects the transfer of a family's primary residence and why decisions around such transfers are not only financial—they're deeply personal. And while the law may appear straightforward, its impacts are far-reaching and the strategies to mitigate those impacts are far from DIY (do it yourself) solutions. They require artfully crafted, multi-disciplinary planning between legal, tax, and financial professionals.

Historical Context: How We Got Here

Proposition 19, formally titled the "Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act," was passed in November 2020 and became law on February 16, 2021. In doing so, it repealed the more generous protections of Propositions 58 (1986) and 193 (1996), which had previously allowed parents (and in some cases grandparents) to transfer real estate to children or grandchildren without triggering property tax reassessment.

What's the New Rule?

Under Proposition 19:

A parent may transfer their principal residence to a child without reassessment, only if:
- The child uses the property as their primary residence; and
- The difference between the market value and assessed value does not exceed $1 million.
All other transfers, including second homes and investment properties, are fully reassessed at market value upon transfer.

And importantly, death constitutes a transfer under California law, meaning that without proper planning, even an inheritance can trigger reassessment.

Case Study: A Tale of Two Transfers

Let's consider a San Jose home:

Assessed value under Prop 13: $350,000
Current market value: $1.8 million

Scenario 1 – Child Moves In:

Transfer occurs during mother's lifetime
Child files for Prop 19 exclusion and moves in
Result: No reassessment
Annual property tax ≈ $4,200

Scenario 2 – Child Does Not Move In:

Transfer occurs at death or child rents it out
Result: Full reassessment at $1.8 million
Annual property tax ≈ $21,600

A $17,400+ annual increase in taxes—enough to force a sale for many.

Planning Considerations

The decision whether to transfer, sell, or hold a family home involves more than tax math. It touches on:

Lifestyle suitability for the child
Affordability of maintenance and taxes
Emotional attachment and family legacy
Liquidity needs of the overall estate

Some families decide to sell the home during life, pay the capital gains (with exclusions available), and reallocate the equity to more flexible, income-generating assets.

Co-Tenancy and Other Planning Paths

In some limited cases, families may explore planning options such as:

The co-tenancy exclusion, where both parent and child live in the home before death;
LLC ownership or irrevocable trusts (though these often trigger reassessment if not carefully structured); or
Lifetime gifting strategies, which may preserve assessed value but raise income or gift tax issues.

Each of these involves trade-offs. They must be custom-tailored to the family's goals, assets, and risk tolerance.

Conclusion

While Proposition 19 significantly limits the ability to preserve a low tax base on a family home, it does not eliminate all opportunities. But the solutions require legal finesse, tax understanding, and a personal sense of family priorities.

If you're thinking about transferring a home to the next generation, now is the time to consult with professionals who can guide you through the complex matrix of legal and financial implications.

This article was last updated on June 8, 2025, reflecting current California property transfer laws and best practices.