How To Use An LLC To Avoid Increasing Property Taxes

The Bad News:

Prior to Proposition 19, children had significantly more property tax benefits afforded them when they inherited property. Unfortunately, Proposition 19 narrowed and eliminated two powerful prior  provisions of Prop 13 respecting real property given or sold by parents to a child:

• The exclusion from property tax reassessment for the parents’ principal residence, UNLESS  the recipient child actually moves into the residence and files the homeowners’ exemption claim within 1 year of transfer. If these requirements are satisfied, the exclusion from reassessment will apply only to the first $1,000,000 of property tax assessed value and will last only so long as the child in fact occupies the property as his or her principal residence. 

• Prop 19 completely eliminated the exclusion from property tax reassessment for real property other than the parents’ principal residence. For present purposes, we’ll assume this  is a commercial, industrial or residential rental property (“commercial property”). [footnote: If the parents own a pre-existing commercial property and put it into an LLC, they can typically transfer up to 50% of the LLC interests to others without triggering reassessment.  However, once more than 50% of the property has been transferred, 100% of the property will be reassessed.] 

Great news:

There is a  simple way to avoid the draconian changes to the law respecting commercial property!!

The key:  Plan ahead!! 

If you are able to plan ahead before acquiring a new property: 

First, you should form a new entity.  LLCs are often the best entity to use to hold the prospective new property. The LLC provides good creditor protection, no annual minutes needed, and more. 

Next, you  would fund the LLC with enough cash for at least a down payment, escrow expenses on the new property and initial operation of the property.

Then the new LLC would purchase the property. 

Result: If done correctly, you will be able to gift or sell the LLC to your children without  reassessment!

To get started on your LLC protection today, contact us at (800) 244-8814 and we’ll be happy to meet with you and your family at our Santa Ana office or at one of our many other offices located throughout the state of California. 

If you have any further questions about estate planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at one of our offices located throughout the state of California 800-244-8814 to set up a consultation.