California Estate Planning Update: Proposition 19 Adjustments and 2025 Tax Law Changes

Proposition 19: Adjusted Exclusion Amount

The California State Board of Equalization announced a 2.15% increase in the Proposition 19 intergenerational transfer exclusion amount, raising it from $1,022,600 to $1,044,586. This adjustment applies to transfers occurring between February 16, 2025, and February 15, 2027. Under Proposition 19, parents and grandparents can transfer their primary residence or family farm to their children or grandchildren without triggering property tax reassessment (subject to limitations), provided the property remains the transferee’s principal residence or family farm. This increase offers additional tax savings for those transferring property within this period.

The California State Board of Equalization (BOE) has issued Letter to Assessors (LTA) No. 2025/015, providing important new guidance on Proposition 19, particularly concerning base year value transfers and intergenerational transfers. Below is a summary of the key takeaways:

Base Year Value Transfers – Clarifications

Prop 19 allows homeowners who are over 55, severely disabled, or victims of natural disasters to transfer the taxable value of their primary residence to a replacement home. The new guidance clarifies:

• Timing Requirements: The replacement residence must be purchased or newly constructed within two years of the sale of the original property.
• Location: Transfers can be made anywhere within California, not just within the same county.
• Multiple Transfers: Eligible homeowners may now transfer their base year value up to three times (previously limited to one transfer under Prop 60/90).

Intergenerational Transfers – Primary Residence Exclusion

Prop 19 narrowed the previous exclusion rules for transfers between parents and children (or grandparents and grandchildren). LTA 25015 highlights:

• Primary Residence Only: The exclusion applies only to the transfer of a family home or family farm that was the transferor’s primary residence.
• Continued Use: The transferee (child or grandchild) must maintain the property as their own primary residence to retain the exclusion.
• Value Test: If the market value of the home exceeds the transferor’s assessed value plus $1 million, the excess portion will be reassessed. For example, if your assessed value is $200,000 and the fair market value is $1,500,000, then $1,000,000 will be added to the $200,000, and the difference ($300,000) will be reassessed. In other words, the property would be partially excluded and partially reassessed. 

Administrative Notes

• Claim Forms: The Board of Equalization has updated claim forms for base year value transfers and intergenerational exclusions. Assessors’ Offices throughout California are instructed to use these updated forms moving forward.
• Retroactive Claims: Taxpayers may retroactively apply for parent-to-child exclusions or transfers within the statutory filing period. However, the assessed value will not go back to the date of the transfer. If the forms are late, the property owner will pay a higher property tax for the period between the date of transfer and the time the forms are filed with the County Assessor’s Office. 

Simplified Property Transfer for Small Estates

Effective April 1, 2025, California has expanded the small estate transfer procedures. The new law allows for the transfer of a decedent’s primary residence valued up to $750,000 without the need for probate or a formal estate plan. This bump in the small estate affidavit procedure only applies to real property. This change aims to ease the burden on families, making property transitions faster and less complicated. It is important to note that this applies only to decedents who pass away after April 1, 2025, and only to the value of the decedent’s primary residence.

Also, the affidavit procedure for collection, receipt, or transfer of personal property has been updated as well. The value for those small estate affidavits was increased from $184,500 to $208,850. 

Trust Termination Simplification

As of January 1, 2025, California Probate Code §15408 allows a trustee to terminate a trust without court approval if the estate is worth less than $100,000. This amendment simplifies the process for small estates, reducing the need for court involvement and associated costs. Prior to this update, the threshold was $50,000.