Prop 19 & Entities: Legal Update and Estate Planning Strategy
One of the major exclusions from property reassessment is the exclusion of real property that is owned by a legal entity, such as a corporation, partnership, or LLC, as provided in Revenue & Taxation Code section 64. In a nutshell, it provides that when realty is owned by a legal entity, certain changes in the ownership of the entity do not constate sale of the realty itself, unless a new person or entity gains control of the entity. For example, if real property is owned by a corporation, shares of the corporation can transfer without causing a reassessment, unless and until a new person or entity takes direct or indirect control of the corporation.
Something important in considering this strategy as part of an estate plan is to ensure the entity structure is established while the owners are alive. When one of them passes and the property is not held in the entity, transferring the ownership of real property into an entity structure is itself a “change in ownership.” This is true even though Sally’s death did not result in a formal transfer of legal title with the County. A transfer of ownership occurs when a revocable trust including an interest in property that vests in persons other than the trustor or their spouse becomes irrevocable.