"Prop 13" Transfers to Grandchildren in California
Does "Prop 13" apply to grandparent-granchild transfers?While it would be natural to assume that California's "Prop 13" parent-child transfer exclusion applies equally to transfers between grandparents and grandchildren, the law is actually very restrictive for such transfers. There is a grandparent-grandchild exclusion from property tax reassessment, but it is subject to the requirement that all parents of the grandchildren who qualify as children of the grandparent(s) be deceased at the time of the transfer; otherwise, the transfer is subject to property tax reassessment.
So, who qualifies as a "child of the grandparent(s)"?
Revenue & Taxation Code Section 63.1 defines a "child" as: 1) a child, 2) a stepchild or spouse of stepchild, 3) a son-in-law or daughter-in-law, 4) an adopted child if adopted before reaching 18 years of age, or 5) a foster child of a state-licensed foster parent.
IllustrationLet's look at a hypothetical scenario to see how this works. Upon his death, Grandpa Jones wants his residence to pass to his grandson, Jimmy. Jimmy's father, Brian, was Grandpa Jones' son, but he is deceased. His widow, Janice, has not remarried. If Janice is still living and has not remarried at the time of Grandpa Jones's death, the property transfer to Jimmy will be subject to a property tax reassessment because Janice qualifies as a living child of Grandpa Jones. However, if Janice remarries or predeceases Grandpa Jones, the transfer to Jimmy will not be subject to property tax reassessment because after Janice's remarriage she no longer qualifies as a "child" of Grandpa Jones.
There are many potential pitfalls to be avoided when transfering property to a family member. Therefore, if you are considering a parent-child or grandparent-grandchild transfer of real property, it is highly recommended that you seek the advice of a competent attorney prior to the transfer.