Reassess Property Tax on Death of an Owner

Reassess Property Tax on Death of an Owner

County assessor will reassess property tax on death of an owner unless prevented


California Property taxes are administered by the County in which the real property is located. The County tax assessor determines the amount of property taxes based upon the fair market value of the property at the date of purchase plus a small amount of increase each year is allowed. The value is called the “assessed value”. The yearly amount of tax is roughly 1.2% of the “assessed value”. Thus, if a property is purchased for $100,000, the annual property tax would be about $1,200 and will increase each year. The county property tax year goes from July 1 through June 30. Tax bills are sent out typically in October and are payable in two installments: December 10 for the first installment and April 10 for the second installment


By law the County tax assessor is entitled to reassess the property and increase the taxes to current market value upon a “change in ownership” of a property. The laws pertaining to property taxes have detailed technical definitions of what constitutes a change in ownership. Thus, when you buy a house on the open market there is a change in ownership and your first property tax bill will be based upon the price you paid for the house. However, if you receive a property as a result of an inheritance or a gift there may be exemptions from the change in ownership rules which would prevent the reassessment of the property taxes.


Reassess Property Tax – A death of a property owner is required to be reported to the County tax assessor within a short time after the death. This enables the tax assessor to reassess the property and increase the property taxes.


Depending upon what happens to the property after property owner’s death there may be an exemption from reassessment that can be applied for. Exemptions must be applied for within 3 years of the death or transferring event on specific forms. The typical exemption is where a spouse dies and the surviving spouse is still the owner of the property whether that be through a living trust or as a surviving joint tenant. Another exemption is known as the parent-child exemption or the parent grandchild exemption. If a parent dies while residing in their home as their principal residence then if their children inherit the home the parent-child exemption may apply. It does not matter what the value of the home was as long as the parent resided there. There is another type of parent-child and grandparent grandchild exclusion which has to do with investment property. The exclusion for investment property is limited to the first $1 million in value of investment property.


The parent-child exclusion and grandparent-grandchild exclusion from reassessment are governed by complicated laws and assessor regulations. Any situa-tion needs to be carefully analyzed BEFORE the change in ownership occurs if possible. As an example, if the property is to be transferred on death through a will or a trust, then the will or trust must be properly worded to fit the family circumstances or else the exemption may not work. An estate planning lawyer should review the financial and legal situation prior to death so that any necessary changes to the will or trust and other recommendations can be made. If a trust or will is involved, the county assessor will review those documents when the exemption is applied for so they need to be correct to not give the assessor an excuse to reassess.
A very typical situation is where a parent has a will or trust leaving his/her estate to her 3 children but actually wants one of the children to get the house. If the house is the only asset of the estate and one of the children gets the house deeded to him or her as part of the after-death administration, (figuring that the others will get paid their share later) the county will say that the parent-child exclusion does not apply to 2/3rds of the house.
If the will or trust does not fit the situation and is not fixed before death, then the situation may or may not be fixable, depending upon various factors. Some steps may be able to be taken to save the exemption if an estate planning lawyer with experience in this area is retained to analyze the situation and recommend the proper steps and documents needed, including possibly going to court. Possible solutions go beyond the scope of this article. It is extremely important to consult estate planning/estate administration lawyers IMMEDIATELY after the death of the property owner and BEFORE filing any papers with the county or state so that the situation does not become worse. Generally the longer one waits to address the situation, the worse it gets because the county will eventually find out about the death and will initiate reassessment procedures on its own.


If an older person has a choice as to whether to move out of his or her principal residence then the property tax consequences need to be addressed. If the principal residence is converted to a rental property then the parent-child exclusion is limited to the first $1 million in value.


In some instances if a child dies and leaves his property to his parents, the exclusion from reassessment may apply. There are other exclusions and technical requirements to all this which can be found in the orange County assessors website on this subject.