Leaving real property—whether it’s a long-held family home or a lucrative rental—in your children’s hands sounds simple in theory. You might assume they’ll just inherit it and carry on. In reality, California’s tax laws (including Proposition 19), local reassessment rules, and modern financial pressures can create an inheritance nightmare. Your children could find themselves unable to afford property taxes or stuck with new expenses they can’t pay.
In this post, we’ll explore strategies that California property owners can use to help ensure they pass on real estate in a way that aligns with their family’s goals—and potentially minimizes the tax burden.
Why a Traditional “Just Leave the House to Them” Might Not Work Anymore
Before Proposition 19, if your child inherited your California home, they often assumed they’d keep your lower property tax basis—no questions asked. That meant they could afford to keep your house, even if it had dramatically increased in value since you bought it. But as you may have heard, these rules have changed substantially.
Prop 19 generally requires that:
- A child who inherits your residence must make the home their own residence to claim part of your lower property tax basis (and even then, only the first $1 million of additional value avoids a big jump in taxes).
- Non-residence properties (rental or commercial) receive no exclusion from reassessment, meaning your child might see an abrupt and hefty tax bill.
If your kids can’t afford this new assessment, they may have little choice but to sell. So, while simply naming your children as beneficiaries in a will or trust was once a straightforward approach, today it may lead to unintended consequences—especially if you own highly appreciated property in California’s competitive real estate markets.
A Quick Overview of the Reassessment Dilemma
We covered Prop 19 in depth in this post,, but here’s what matters for inheritance planning:
- Reassessment can hike property taxes from, say, $3,000 a year to $30,000 a year if the property’s value has soared.
- Family members often can’t make up that difference, forcing a sale of the asset you intended them to keep.
- If you’re aiming to pass along your real property without pushing your kids into financial distress, consider a more proactive approach.
For a deeper dive on California’s property tax reassessment issues, check out our video on Prop 19, where we break down real examples of rising taxes.
Strategies to Protect Your Children from Tax Surprises
Here are some potential ways you can plan around property tax issues. Keep in mind that these strategies aren’t one-size-fits-all; it’s best to consult an experienced California estate planning attorney to confirm what’s right for your family.
Intergenerational Joint Ownership
One approach sometimes floated by parents is adding a child to the deed while the parents are still alive. This can, however, be risky:
- Gift Tax Issues: Adding someone else to your property might count as a taxable gift, depending on how it’s structured.
- Loss of Control: If your child is a co-owner, they might have a legal say in selling or managing the property.
- Risk of Property Seizure: If your child encounters personal financial problems (like lawsuits or divorce), a shared property may become fair game for creditors.
So, while it seems straightforward, joint ownership may open more liability than it saves in taxes, especially under Prop 19. In our video below, we discuss some of these pitfalls in more detail.
Irrevocable Trusts (Such as IDGT or QPRT)
Placing a home into an irrevocable trust might help remove the property from your taxable estate, and in some cases, “freeze” its value for tax purposes. Two specialized options include:
Intentionally Defective Grantor Trust (IDGT)
- Freezes the home’s valuation, so future appreciation is excluded from your estate.
- However, the home’s property tax basis may still lead to big bills if reassessment occurs at your death.
- Often more useful for federal estate tax savings than for local property tax relief.
Qualified Personal Residence Trust (QPRT)
- You transfer your home into a QPRT, continue to live there for a set term, and afterward, it passes to your children with a lower estate tax value.
- But for Prop 19 property taxes, your children might still face reassessment if they don’t occupy the residence as their primary home.
While these trusts offer some estate planning benefits, they don’t fully dodge the Prop 19 bullet on California property taxes. Please note that Cookman Law does not prepare these types of sophisticated irrevocable trusts.
Exploring “Grandfathered” Arrangements Before Major Life Changes
If you’re considering downsizing or relocating to use Prop 19’s portability for yourself (e.g., moving to a cheaper house but keeping your low tax base), do it thoughtfully:
- Talk to your children about long-term plans. If they’re likely to move in and keep the property, great. If not, see if an alternate approach or trust structure can reduce property tax spikes.
- Check whether your rental or vacation property could be reclassified somehow or transferred under certain family-limited entity structures, though these can be complex.
Consider Lifetime Gifts of “Cash Instead of the House”
Sometimes, you might be better off selling your property (or some of it) during your lifetime and gifting the proceeds to your children (while abiding by gift tax rules). This way, they receive cash that can help them buy a home on their own terms, or invest in properties not subject to a massive jump in taxes.
Yes, you may face capital gains or other taxes upon the sale, but it may still be more manageable than the property tax burden your kids face if they inherit. The trade-offs depend on your family’s financial standing and where they fall in the income tax brackets, so weigh these carefully with both an estate planning attorney and a tax professional.
Long-Term Payment Plans: Could They Work?
In rare cases, if children want to keep the inherited property, they might try to:
- Refinance or take out a loan to cover newly increased taxes.
- Negotiate partial buy-outs among siblings if only one or two of them plan to reside in the house.
- Use rental income from the property to offset higher tax bills, if the property is in a strong rental market.
But these solutions can be complicated, and assessors’ offices tend to scrutinize these types of transactions carefully. In addition, success could hinge on stable finances and agreement among siblings.
The Reality of Selling—and Why It Might Be Best for Some
Selling a residence may feel like the final option nobody wants to resort to, but in many families, it can be the most financially sound decision. If the property has appreciated significantly, your children may benefit from a valuable step-up in basis upon your death, meaning they’ll owe less in capital gains tax on the sales proceeds. While they might lose a sentimental property, they gain flexibility—cash that can fund their own housing or investment decisions.
Given how Prop 19 can sharply raise property taxes, maintaining your parents’ home sometimes just isn’t worth it. This reality prompts many younger Californians to sell inherited property. (Is it any wonder that California realtors’ associations advocated for Prop 19?!) If you suspect your kids face that possibility and might need to sell the home, talk to them about it in advance. They may well prefer the liquidity anyway.
Tying It Back to Proposition 19
Under Prop 19, there are specific requirements that must be followed in order to transfer property after your death: children must claim the inherited home as their primary residence to preserve some of the low property tax basis, and even then, only the first $1 million of value is excluded from reassessment.
For highly appreciated homes in California, this can still spell enormous new property taxes—leading to forced sales or financial strain.
Key Takeaways:
- Conversations with your kids matter. If they plan to move into your home upon your death, maybe you can keep the house in the family. If not, consider alternative estate structures or selling before death.
- Evaluate trust options that address your overall estate planning needs but be wary of assumptions about property tax relief—those might not hold under Prop 19 unless the trust is carefully structured.
Want Personal Guidance?
Leaving real property to children in California has become more complex than ever before. With Proposition 19 dramatically changing the property tax landscape, a carefully planned approach to passing on real estate can be the difference between keeping the family home in your bloodline and forcing your kids to sell.
No matter your situation—whether you’re updating a family trust for adult children, thinking of selling your home soon, or have unique assets like rental properties—talking to an experienced estate planning attorney is essential. You may be able to position your real estate to minimize inheritance tax hits, but it’s a delicate process in today’s legal climate.
Some families leverage irrevocable trusts or lifetime gifts. Others accept that selling might be the best call. Ultimately, the right strategy depends on your property’s value, your kids’ financial readiness, and your broader estate goals.
What matters most is that you start the conversation early, understand your options thoroughly, and—when in doubt—seek professional advice. As you coordinate your estate plan and/or trust, keep in mind that your children’s ability to actually keep the property (and carry on your legacy) hinges not just on your willingness to pass it down, but on how you navigate California’s tax laws every step of the way.