For decades, passing down your home to your children meant they could also inherit your stable, low property tax base. However, California’s Proposition 19 significantly changed the rules for inherited property. If you are planning your estate, understanding how these changes impact your family can help you anticipate how your assets will likely be passed down to them, and the possibility of your children keeping your home in the family.

What is Proposition 19 and How Does It Affect Your Estate?

Passed by voters and put into effect in 2021, Proposition 19 fundamentally restructured state property tax rules. It impacted homeowners in two major ways: it expanded tax transfer benefits for older and disabled homeowners, and it severely limited the tax benefits on inherited properties.

Under the old rules of Proposition 58 and 193, parents could pass a primary residence of any value, plus up to $1 million in other real estate (like vacation homes or rental properties), to their children without triggering a property tax reassessment.

Proposition 19 rewrote most of those rules. Now, a family home is reassessed unless an exclusion applies. Secondary residential properties, like rental properties or vacation homes, are completely reassessed. Unfortunately, a reassessment to current market value typically increases the tax burden substantially.

The Primary Residence Exclusion: Passing Your Home to Your Children

Proposition 19 includes a “parent-child exclusion”. This exclusion applies to primary residences, but comes with certain requirements and restrictions as laid out Revenue and Taxation Code Section 63.2.

1. The Move-In Requirement

At least one child must move into the property and establish it as their own primary residence within one year of the transfer (which, in the case of an inheritance, is the parent’s date of death). The child must also file Form BOE-266 (Claim for Homeowners’ Property Tax Exemption) with the County Assessor within that same one-year window.

2. File a Claim for Reassessment Exclusion

The child must file Form BOE-19-P (Claim for Reassessment Exclusion for Transfer Between Parent and Child) with the County Assessor within three years of the date of death or transfer, or before the property is transferred to a third party, whichever comes first. The form is also considered timely filed if it is filed within 6 months of receiving a supplemental or escape assessment notice from the County Assessor. Practically speaking, it is best practice to file Form BOE-19-P alongside Form BOE-266.

3. The Exclusion Limit

The exclusion is limited to increases in assessed value of $1,044,586 or less. If the home appraises for more than $1,044,586 over its current assessed value, the property is subject to a partial reassessment.

Let’s consider an example. Say a home in Belmont was purchased in 1980 for $200,000. Its current assessed value, based on the 2% maximum annual adjustment, is now approximately $497,000. The current homeowner now pays approximately $6,167 in annual property taxes.

Say the homeowner passed away on January 1 2026, and gifted the home to their child through their estate plan. The child moves into the home and is eligible for the parent to child exclusion. The home is appraised at $2,000,000.

In this situation, the home would be completely covered by the parent-child exclusion if it was appraised at equal to or less than $1,541,586 (that is, the home’s current assessed value of $497,000 plus the $1,044,586 exclusion amount). However, as the home is appraised at $2,000,000, it exceeds the exclusion limit by $458,414. Consequently, the excess ($458,414) will be combined with the original homeowner’s assessed value ($497,000) to create a new assessed base value of $955,414. The child would therefore owe approximately $11,942 in property taxes in 2026.

If the child instead opted to keep the home as an investment property, the transfer would not fall under the parent to child exclusion. The home would therefore be fully reassessed and the child would owe approximately $25,000 in property taxes in 2026.

Unfortunately, the restrictive nature of the parent-child exclusion means that many child beneficiaries face partial or full reassessments on inherited properties. As a result, many beneficiaries opt to sell real property so as to avoid being hit with significant property taxes.

What do I do if I have multiple children and one child wants to keep our house?

A common dilemma arises when parents leave a home to multiple children. If you have three children, your trust might state that your estate should be divided equally among them. What happens if only one child wants to live in the family home, while the other two prefer their share in cash or other assets?

If this situation is handled incorrectly, it can inadvertently trigger a partial tax reassessment due to what the California Board of Equalization views as a “sibling-to-sibling” transfer. Say your children decide to split each asset equally, and the child who wants the house buys out their siblings’ shares using their own personal cash or an individual bank loan. The state will view that transaction as a sale between siblings, which does not qualify for the parent to child exclusion. Consequently, the portions of the home bought out from the siblings will likely be reassessed to full market value.

However, there is an alternative approach that can ensure the parent-to-child exclusion is kept intact for the entire property. This approach involves a direct transfer from the parent’s estate or trust, rather than transfers between the child beneficiaries. This is achieved using a strategy known as a non-pro rata distribution.

Successful non-pro rata distributions require the following:

• Trust Authorization: First, your living trust must explicitly grant the trustee the authority to make non-pro rata distributions. This means the trustee has the flexibility to give different assets of equal overall value to different children, rather than forcing an exact equal split of every single asset.
• Shuffling Trust Assets: If your trust holds the home plus enough cash or investments to balance out the inheritance, the trustee can allocate 100% of the home to the child who wants to live there, and distribute the equivalent value in cash to the other siblings. Because the entire home moves directly from the parent to that one child, the full parent-child exclusion can be preserved.
• Using an Equalization Loan: If the home is the only major asset in your trust, the trustee may be able to secure a specialized third-party loan on behalf of the trust before distributing the property. The trust uses the loan proceeds to pay the other siblings their cash shares. The child keeping the home then inherits the property encumbered by the loan. Because the trust acted as the borrower and distributor, the state typically recognizes it as a parent-to-child transfer.

Designing Your Estate Plan in Light of Proposition 19

Navigating the nuances of Proposition 19 requires careful wording in your estate planning documents. Ensuring your trust contains the proper administrative clauses today can give your family the flexibility they will need tomorrow.

If you want to review your current trust to verify it has the necessary language to protect your real estate, or if you are ready to design a plan that safeguards your home for your children, we are here to guide you through the process. Schedule a complimentary consultation with Attorney Alison Youssef or call us at (650) 880-2388 to ensure your estate plan best protects your children.