Probate, Inheritances, and Property Taxes

The title to the article sums up USA Today’s article¬†Divorce, Death, and Donald Sterling’s Boyhood Home.¬†The article describes several properties in Boyle Heights still owned by Donald Sterling’s deceased mother and grandmother.

In California, property taxes are determined by “assessed value,” which is derived from the fair market value of a property at the time it changes ownership. For example, a property purchased in the 1970s will have a low assessed value because it was purchased at a lower price than it would receive today.

If you sell a property, it will get reassessed, but there are often questions whether a property will be reassessed if you want to leave the property to your children, grandchildren, other relatives, or friends.

Generally, a transfer from a parent to a child does not trigger a reassessment. There is no limit to transfers of a primary residence; however, there is a $1 million limit to other properties. A transfer can be the result of a gift, a sale, or an inheritance. It can also be through a trust.

A child for purposes of the property tax exclusion includes:

  • Any child born of the parent(s)
  • Any stepchild while the relationship of stepparent and stepchild exists.
  • Any son-in-law or daughter-in-law of the parent(s)
  • Any adopted child who was adopted before the age of 18

Further, a grandchild could be considered a “child” for purposes of a property tax exclusion if the child of the transferor has died along with the spouse of that child.

The California Board of Equalization has an FAQ’s that provides a lot of information regarding the parent-child exclusion for the property tax.