Friday, April 29, 2011

Property Tax Considerations in Estate Planning

Property taxes are an important, and often overlooked, consideration in estate planning and estate administration, particularly in the State of California. Many people focus on federal estate tax considerations, with perhaps some concern for gift, generation-skipping transfer and income tax consequences. It isn’t until a client receives a large property tax bill indicating that their property has been reassessed for property tax purposes that it becomes apparent that there is a problem.

How California Property Taxes Work

In California, annual property taxes are calculated as a percentage of a real property's assessed value. Assessors may increase a real property's assessed value by only 2% each year unless there is a “change in ownership”. This has worked in favor of property owners because historically, real property values have increased at a rate greater than 2% per year.

When a “change in ownership” occurs, it triggers a property tax reassessment, and allows the County Assessor to adjust the assessed value of the real property to the current fair market value. The “change in ownership” rules are very complex and confusing. Property owners often inadvertently trigger a reassessment, which can cause significant increases in property taxes each and every year thereafter. This is one reason why you should never attempt to transfer an interest in real estate without first consulting an attorney – such a transfer could lead to a significant increase in property taxes, not to mention other problems.

Beware of Property Tax Issues in Business Succession Planning

If you own a business and have real property titled in the name of your business, you must be even more careful. A transfer of even a small interest in a business, even 1%, can trigger a reassessment of all of the California real property owned by your business. In addition, if you fail to report an event triggering a change in ownership in a timely manner, you face substantial penalties from the State Board of Equalization.

Experienced Estate Planning Attorney in San Diego

Careful consideration should be given when choosing an estate planning attorney, because it is easy to overlook property tax and other issues. Hiring the least expensive attorney to do your estate plan could result in increased property taxes for as long as you own your property.

In next month’s blog entry we will take a close look at property tax issues that arise in probate and trust administration. If you have any questions regarding estate planning, contact the Casiano Law Firm for assistance.