California’s Proposition 19 has reshaped property tax planning and has prompted many families to reconsider their estate strategies. Understanding these changes and the remaining opportunities is critical for preserving generational wealth. 

The Legacy of Proposition 13
To understand the impact of Proposition 19, consider Proposition 13, passed in 1978. It capped property tax rates at 1 percent of a property’s assessed value and limited annual increases to 2 percent, unless ownership changed. This gave property owners long-term tax predictability and allowed families to keep real estate for generations with a low tax base. Over time, as market values rose, families with long-held property enjoyed especially favorable tax rates. 

What Changed Under Proposition 19?
Before Proposition 19 took effect on February 16, 2021, parents could transfer California real estate, including vacation homes and rental properties, to their children without triggering reassessment, which preserved the low property tax base. 

Proposition 19 eliminated most of these exclusions. Now, only transfers of a primary residence may avoid reassessment, and only if: 

• The child or children move into the home and use it as their primary residence. 

• The market value does not exceed the assessed value by more than $1 million. If it does, the excess is reassessed. 

Other property transfers, including vacation homes and income properties, now face reassessment at market value, which can drive up annual property taxes. 

An Alternative: Entity Ownership
Although Proposition 19 narrowed most parent-child exemptions, it did not change the rules for property owned by legal entities like LLCs or limited partnerships. Under California’s tax code, an ownership change within an entity does not trigger reassessment if no one ends up owning more than 50 percent. This opportunity generally applies when the entity originally acquired the real estate. 

Example: LLCs and Property Tax Savings
Consider a family-owned LLC that holds a commercial property with an assessed value of $1 million and a market value of $3 million. The LLC is owned equally by a husband and wife. 

• When the husband dies, his ownership transfers to his wife without reassessment. 

• After her death, she leaves the 100 percent interest in the LLC to their three children. 

• Each child now owns one-third, so no one owns more than half. 

Because no single person controls more than 50 percent, the LLC structure prevents reassessment. The family keeps the $1 million tax base, saving tens of thousands of dollars each year. 

Final Thoughts
For families with significant California real estate holdings, Proposition 19 presents challenges and opportunities. While traditional inheritance methods now come with higher property taxes, holding property through an LLC or partnership can protect a lower tax base. Reviewing your estate plan and considering entity ownership strategies can help keep property taxes in check and preserve long-term wealth.  

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