When most people think about estate planning, their minds go straight to wills, trusts, or dividing assets among loved ones. But if you live in Orange County, California, there’s another crucial piece of the puzzle you shouldn’t overlook: property taxes.
Property tax laws here can seriously impact how your estate is managed and what your heirs receive. That’s why working with an experienced CPA, like Donna L. Stern, C.P.A., who specializes in estate and trust tax in Orange County, can make a world of difference.
In this post, we’ll break down how property taxes fit into the estate planning picture, what you should watch out for, and some smart ways to manage your real estate assets for the long haul.
Why Property Taxes Matter in Estate Planning
If you own real estate in Orange County, you’re likely sitting on a significant portion of your net worth. It’s no secret that property values in Southern California are high, and that’s both a blessing and a challenge when it comes to planning your estate.
Here’s why property taxes matter:
- They can increase after a property changes hands.
They affect the affordability of inherited properties. - They may force heirs to sell property just to cover costs.
- They’re tightly regulated under California’s complex tax laws.
Understanding the rules today can save your family a major headache down the road.
A Quick Look at Proposition 13
In California, Proposition 13 sets the ground rules for property taxes. It caps property tax rates at 1% of the assessed value and limits annual increases in assessed value to 2%, unless there’s a change in ownership or new construction.
This is great news for longtime homeowners who bought property years ago, as your tax bill stays relatively stable. But here’s the catch: once that property is passed on to someone else, the tax assessment could jump dramatically.
So, let’s say you bought a home in the ’80s for $200,000. Your property taxes might be based on that number, even though the home’s market value is now $1.5 million. If your children inherit the property and it gets reassessed at market value, they could face a much higher property tax bill.
Proposition 19: What Changed?
Proposition 19, which went into effect in 2021, made some big changes to how property transfers work in California.
Before Prop 19:
- Parents could transfer their primary residence to children without reassessment.
- They could also transfer up to $1 million in other property per parent.
After Prop 19:
- The exemption for other properties (like vacation homes or rentals) is gone.
- The primary residence can still be transferred without reassessment only if the child makes it their primary residence within one year.
- Even then, there’s a cap on how much value can be excluded from reassessment.
This was a major shift and one that caught many families off guard.
The Hidden Cost of “Gifting” Real Estate
Some people try to avoid reassessment or the estate tax altogether by transferring property to children before death. While this may sound like a smart move, it’s not always tax-efficient.
Here’s why:
Loss of step-up in basis
When property is inherited, it typically gets a “step-up” in basis to its market value at the time of death. This can reduce or eliminate capital gains tax if the property is later sold. Gifting the property during your lifetime means your kids inherit your original purchase price as their basis, potentially creating a big tax bill.
Triggering property tax reassessment
Even lifetime transfers can count as a change of ownership under state law, leading to a reassessment of the property’s value for tax purposes.
Before transferring any property, it’s important to get professional advice. Every situation is unique, and the wrong move could end up costing more than it saves.
Estate Planning Strategies to Minimize Property Tax Impacts
Fortunately, there are still ways to manage real estate and property taxes wisely within your estate plan. Here are a few approaches:
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Use of Trusts
Revocable living trusts are commonly used in California estate planning. While they don’t avoid property tax reassessment on their own, they can make it easier to pass property smoothly without probate. Certain irrevocable trusts, when structured correctly, might help preserve property tax benefits, but only with careful planning.
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Legal Entity Ownership
Some families place real estate in LLCs or partnerships, which can offer more control over how ownership is transferred and may, in certain cases, delay reassessment. However, this is a complex area and must be handled with help from a CPA and legal advisor.
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Claiming the Prop 19 Exclusion Properly
If a child is eligible to take over a primary residence under Prop 19, the exclusion must be filed promptly, generally within one year. Missing deadlines can be costly. A CPA familiar with estate and trust tax in Orange County can help ensure everything is filed correctly.
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Balance Lifetime Gifting With Estate Planning
Sometimes, making small lifetime gifts, like a partial interest in a property over several years, can work out in your favor. But it’s a balancing act that requires understanding gift tax laws, capital gains, and property tax rules all at once.
Why You Need a CPA in Orange County Estate Planning
California’s tax laws aren’t just complicated, they’re constantly changing. If you’re trying to make the best decisions for your family, guessing or googling your way through estate planning just isn’t enough.
An experienced CPA, especially one who works directly with estates and trusts in Orange County, can:
- Help you understand exactly how tax laws affect your property.
- Work with your attorney to structure trusts or gifting strategies.
- Make sure all tax filings, deadlines, and claims are handled correctly.
- Optimize your estate plan from both a state and federal tax standpoint.
Donna L. Stern, C.P.A., brings years of hands-on experience in guiding clients through complex tax matters. She knows Orange County real estate and estate tax law like the back of her hand, and she works closely with your legal team to make sure no stone is left unturned.
The Bottom Line
Estate planning isn’t just about who gets what; it’s about making sure your loved ones are protected from avoidable tax burdens, confusion, and unnecessary costs.
If you own property in Orange County, property taxes could be one of the biggest factors shaping the future of your estate. Navigating this world isn’t easy, but it’s manageable with the right team.
Whether you’re setting up your first estate plan or looking to update an old one, consider reaching out to a professional like Donna L. Stern, C.P.A., who specializes in estate and trust tax in Orange County. A little guidance today can make a big difference for your family tomorrow.
Note: The information provided in this blog post is for general informational purposes only and should not be construed as legal or tax advice. Consult with a qualified estate planning attorney or tax professional to address your specific circumstances.
