URGENT PROPERTY TAX WARNING: UNLESS YOU COMPLETE SPECIAL PLANNING BY FEBRUARY 15, 2021, PROP. 19 MEANS PROPERTY INHERITED BY YOUR CHILDREN WILL BE REASSESSED.
DON’T LET THIS STEALTH TAX INCREASE CATCH YOUR FAMILY BY SURPRISE.
A little publicized (hidden?) provision of Prop. 19, passed in November, has created a CRISIS that will devastate the children of property owners who do not implement special planning by February 15, 2021.
Join “THE APARTMENT OWNERS’ ESTATE PLANNING ATTORNEYSM” for a time sensitive AOA Livestream on strategies you need to implement by February 15, 2021 if you want to prevent costly reassessment of your property when it is inherited by your children. This planning may save your children hundreds of thousands, or even millions, of dollars in property taxes over their lives.
This imminent THREAT comes from the passage of Prop. 19 on November 3. Effective after February 15, 2021, real estate owners will NEVER AGAIN be able to transfer real estate (with limited exceptions for principle residences left to a child who makes it his/her principle residence) to children without incurring property tax reassessment. THIS IS A VERY BIG DEAL.
The risk posed by this THREAT led Attorney Kenneth Ziskin to refine a STRATEGY TO PERMIT PROPERTY OWNERS TO AVOID REASSESSMENT ON THE TRANSFER TENS OF MILLIONS OF DOLLARS IN PROPERTY VALUE for the benefit of children.
Generally, we expect this strategy to defer reassessment for a full generation, maybe for 25-35 years. This strategy can work for any real property, including your home, as well as apartments, commercial property or even raw land.
Amazing as it may sound, while this strategy requires careful, step-by-step planning, the California Board of Equalization has repeatedly confirmed the principles which support the strategy. Please note: For most owners, we can make this planning work for property tax savings and still preserve income (and/or access to cash flow) for the parents who put the planning together!
Even better, when coordinated with advanced estate planning, the strategy can either: (1) allow you to keep property in your estate to seek a Step-Up in basis; or (2) get it out of your estate to try to reduce or eliminate estate taxes after death. Unfortunately, you probably need to complete this planning and decide whether you want property “IN,” or “OUT,” of your estate NOT LATER THAN 2-15-21 according to this planning.
IF you keep the property in your estate, under current law your children can get an adjustment to income tax basis (generally a “Step-Up” if value is higher than original cost less depreciation). A Step-Up will further enhance their cash flow for years by restarting depreciation at a new market value.
But, sadly, the Democrats seem committed to end the Step-Up in Basis, maybe as soon as 2021 – my crystal ball is too cloudy to tell whether, or when, they might “kill” the Step-Up, but I would not bet on it lasting for very many years.
If you decide to keep property in your estate, hoping for the Step-Up, it will be subject to death taxes (at 40-45% or more) if your estate is higher than your estate tax exemption, currently $11.58 million to the extent not used previously. Unfortunately, the Democrats have also proposed cutting the estate tax exemption to just $3.5 million per person.
So, you may decide it makes more sense to plan for estate tax savings, instead of a Step-Up in basis. You might make that choice either because your estate already exceeds the applicable exemptions (more than $11.5 million per person). Or, you may worry, as I do, that the combination of growth in the value of your estate, and reductions in the exemption, will expose your heirs to confiscatory estate taxes.
In making the choice between targeting the Step-Up, or death tax savings, many owners may choose death tax savings, due to concerns that death taxes would force heirs to break up and sell property you spent a lifetime accumulating.
Furthermore, if you complete prudent planning before February 15, 2021 to prevent property tax reassessment, your children can keep a meaningful income advantage over those who buy, or inherit, property assessed at full fair market value.
EXAMPLE: Consider a fairly typical portfolio of property that has been owned for years. Assume the real property is worth $5 million, assessed at $1 million. Reassessment could increase property taxes by about $100,000 per year after parents pass. Sometimes that will just mean less cash flow for your kids; other times, it may force/motivate them to sell property that you otherwise wanted your children to keep as part of a family legacy. Over 30 years, with the 2% annual property tax exclusion still permitted, this can save your children about $2 MILLION IN PROPERTY TAXES!!
DON’T MISS YOUR CHANCE TO LEARN ABOUT THE RISKS OF PROP. 19, AND HOW TO PROTECT YOUR FAMILY FROM THEM. REGISTER FOR THE 10:00 AM JANUARY 7 LIVESTREAM: CLICK HERE TO REGISTER
AND, IF YOU WANT TO DISCUSS THIS WITH MR. ZISKIN, REACH HIM AT 818-988-0949 OR [email protected].