Plan Now Before Prop 19 Takes Effect

California is about to go through a dramatic change to real estate and property tax assessments with Proposition 19 (Prop 19) going into effect on February 16, 2021. Prop 19 replaces Proposition 58 (Prop 58), which has provided a favorable transfer of real estate from parent to child. It is important to understand these changes to see if you need to make any immediate changes to your real estate holdings before Prop 19 takes effect.

How do current laws work?

Currently, real estate with a low tax basis can be transferred during the parent’s lifetime or at death to a child and the child keeps the low basis and it does not trigger a tax reassessment. This rule applies to both primary residences and rental properties. The kids can live in the home or turn it into a rental and maintain the same low taxes the parents enjoyed. This transfer has unlimited value for a primary residence and “non-principal residence” (rentals or other homes) is limited to $1 million of assessed value per person. A married couple can transfer $2 million in assessed value. This means a property worth $3 million but a tax assessed value of $750,000 can be transferred to the children.

What changes with Prop 19?

Under Prop 19 any primary residence gifted to children will require the children to maintain that as their primary residence for the remainder of their life. If they turn the property into a rental or live in another home, that will trigger a tax reassessment on the property creating larger property taxes. The exemption amount is lowered to $1 million and applies ONLY to primary residences. The non-primary residence home exclusion is eliminated and will trigger a tax reassessment.


1. Primary Residence

Assume you bought a home twenty-five years ago and today it is worth $2.4 million but has a tax assessed value of $400,000. Under current law, the home can be transferred to your children during your life or at death and they will maintain the tax basis of $400,000 and can live in the home or turn it into a rental.

Under Prop 19, once the home is transferred to your children, one of them must live in the home immediately and maintain it as a primary residence indefinitely to avoid a tax reassessment. Since the home is worth more than the $1 million new exemption, it would trigger a new tax assessed value. The new tax assessed value would be $1.4 million ($2.4 million value – $1 million exemption) instead of $400,000.

2. Rental Property

Assume you bought a rental property twenty-five years ago and today it is worth $2.4 million but has a tax assessed value of  $400,000. Under current law, the home can be transferred to the kids and they maintain the $400,000 tax assessed value since a couple can use exemptions up to $2 million in tax assessed value.

Under Prop 19, the “non-principal value” exemption is eliminated so it would trigger a large tax assessment and the kids do not retain the $400,000 tax assessed value.

What should you do?

If you own a home in California with a low tax basis and would like to keep the property in the family, talk with us and your estate planning attorney today to explore if you should consider gifting the property before the February 16th deadline when Prop 19 takes effect. If you would like to contact us, please speak with your advisor or you can reach us at  

How to Make and Keep a New Year’s Resolution

Maybe you plan to start 2021 on the right foot by creating a resolution and sticking to it. Some of the most common resolutions each year include quitting smoking, losing weight, paying down debt, saving more, or maybe it is just to be happier. We know it is all too uncommon for people to have the best of intentions but not stick to their goals. If you go to any gym early in the year, you see the number of people there is huge (maybe not this year) and those numbers quickly dwindle as the new year rolls into February and March. So how can you ensure that your resolution makes it past the first 90 days?

You must create new habits by being intentional in your actions and having a plan. If you are consistent with your plan over time you will find the process becomes easier and more enjoyable, especially as you begin to see the results of your hard work. Making it past the first 30, 60, and 90 days is the hardest but gaining motivation from positive results along the way makes the process easier. Here are some tips to make it past the hump:

1. Identify the End Goal.  Dream. Dream Big! Having a huge, audacious goal provides clarity and motivation. Identify that big goal that can be measurable like losing 30 pounds, writing a book, starting a business, or learning a new language. With some support, grit, and help you can make the dream a reality! It is better to aim for the moon and settle for the stars.

2. Break Down the Goal into Manageable Pieces.  It can be overwhelming and paralyzing to think about what you must do to attain that big goal. Now you need to break it down into bite-sized pieces. How do you eat an elephant? One bite at a time. The same is true for your goals. Now break down the goal into bite-sized pieces to make it more attainable and less scary. Map out small steps that become bigger over time that move you towards your end goal. Write down the goal into a checklist and you can mark the first item off of starting the checklist.

3. Remember Why You Are Doing This. As you go through the process it is easy to become frustrated or lose sight of what motivated you to make the goal in the first place. When I lost the weight, I was frustrated by not seeing results “fast enough”. When I remembered that I was doing this so I can have more energy and be a better dad it helped me to stay focused. This step is important as you progress to help you maintain your focus, passion, and dedication to the goal

4. Commit Yourself. Make yourself accountable through a written or verbal promise to people you don’t want to let down. Goals are easiest if you are not alone. If you workout, have a gym buddy or a trainer. If you are starting a business, find a mentor or group of other individuals starting a business. Social media makes it easier than ever to find like-minded individuals to help you along the way. Let them know your goals and help keep you accountable.

5. Have Grace for Yourself. Understand that you have many victories along the way and not just when you complete the big goal. If you are running a marathon completing your first 10-mile run is just as important as completing the marathon. There will be setbacks and don’t get down on yourself. We are our own worst enemy.

6. Be Thankful and Enjoy the Process. Having a thankful heart and some humor makes the process much easier. If three months in you wanted to lose 15 pounds but only lost 10, be thankful that you are down a size. There will be days you do not have the time or will power to achieve your small targets. Maybe the plan for the month is to pay an extra $500 to debt but you lack motivation or had an unexpected expense. Pay an extra $100 that month instead and be proud of yourself for doing something towards your goal.

Remember that if you do not reach your goal this year you will still be better off for working towards the goal and making progress along the way. Have fun with it and involving other people always makes the process easier. Best of luck conquering those resolutions in 2021!

Announcing our Money Mastery webinar series

After great reviews from our Summer Webinar Series, we are pleased to announce a complimentary follow-up slated for the rest of September (kicking off next week, September 15th, at 3:30 PM PDT) – this time focusing on financial literacy, and meant for those in their teenage years through mid-career. While a great program to watch on your own, for those with children this entire series is geared to bring them in to watch with you, hopefully sparking conversations around money habits and education planning.

Each session will be approximately 30 minutes, with interactive polling for those logged in on the computer, followed by a live Q&A session.

Below are the dates and times for the webinar and click on the links to register:

September 15th at 3:30 PM PDT – Connecting the Dots to Your Financial Future (Part 1)

September 22nd at 3:30 PM PDT – Connecting the Dots to Your Financial Future (Part 2)

September 29th at 3:30 PM PDT – A Definitive Guide for Education Planning

Executive Order for Payroll Taxes

A few weeks ago, President Trump signed four executive orders to act as a bridge until more permanent measures for coronavirus aide are passed by Congress. The least understood of these gave employers the option to defer the employee-only portion of 6.2% for Social Security tax for employees that typically earn less than $104,000. This deferral is allowed from September 1st through December 31st of this year. It is important to note that employees do not get to make this decision and this decision is at the employer’s sole discretion.

Based on current IRS guidance this is simply a deferral of taxes owed, so additional withholding on compensation from January 1 through April 30th, 2021 would have to increase to recover the deferred taxes. If the employer does not collect the deferred taxes from an employee (i.e. terminated employee), the employer is still responsible for payment on the deferred taxes by May 1, 2021. For eligible employees, employees would have no Social Security tax withheld now until the end of the year but would have double the normal withholding for the first four months of 2021 to recover the delayed taxes. If the taxes were not withheld from an employee’s paycheck then the employer would be responsible to pay the shortfall for the remaining deferred taxes.

In our view implementing this deferred tax option for eligible employees does not seem to make sense. It may create a cash flow burden next year for employees and potentially an unfunded liability for employers. There has been some speculation that Congress may forgive these deferred liabilities, but given the current political uncertainty, we do not feel secure recommending this based on conjecture. If you have any questions or concerns, please do not hesitate to contact us.

New taxes have already begun so refinance now if you need or want to.

Talk with your financial advisors.

There is a new surcharge that Fannie Mae and Freddie Mac, the two government sponsored mortgage agencies are imposing on mortgage refinancing. It is unbelievable that a government sponsored entity will increase fees on homeowners who are in need, suffering, and are barely able to make their payments. Something is clearly wrong here.

The government-controlled mortgage companies announced that they will levy a one-time 0.5 percent fee on refinance loans they purchase starting on Sept. 1, citing “market and economic uncertainty” caused by the coronavirus crisis.

While Fannie and Freddie will slap the fee on lenders at the point of sale, the cost will be passed on to consumers in the form of higher mortgage rates. The 50-basis-point surcharge amounts to about $1,400 for the average loan backed by the companies.

If you are thinking of refinancing, we think you should refinance before September 1st when the surcharge really adds to your payment.