Much has been written about how people can learn from the mistakes made by celebrities who passed away without having created an estate plan. Something that is less prevalent is being able to learn from celebrities who have planned well. Estate planning is not something that should be left until one’s later years in California. Luke Perry, the actor, was only 52 years old when he died but had apparently already put into place a very comprehensive and well-thought-out plan.
While the size of Perry’s estate is likely considerable, one of the biggest assets may well be the $2 million home that had been transferred to his two children. The house had been transferred from a revocable trust to his two children, with each child receiving an equal share of the property. This enables the children to be able to take advantage of a little-known property tax loophole known as the parent-child property tax exemption.
It is no secret that the cost of California real estate is high and that property values tend to increase significantly over time. Proposition 13, a law passed in 1978, allowed existing homeowners to roll back tax values to their 1976 levels and limit the amount they could increase to 2% per year. Another law, Proposition 58, passed in 1986, allows for a child to inherit the parent’s property tax base. If a child inherits a home purchased for $100,000 in the 1970s that is valued at the time of a parent’s passing at $1,000,000, the child can inherit the property tax base of the parent that could be in the neighborhood of $2,000, and its growth would be limited to 2% per year.
There are rules and procedures that must be followed to be able to take advantage of the parent-child exclusion. If a person in California is contemplating estate planning and is considering incorporating this feature into one’s plan, he or she may wish to consult with an attorney who is experienced in dealing with the complexities and details of the laws involved. A knowledgeable lawyer can look at the individual situation and advise the client on the most beneficial path to take.