Keeping It In The Family

As a member of Running Point Capital Advisors’ multidisciplinary financial services team, a South Bay local and a de facto CFO for numerous families, I love diving into new tax legislation to understand how the changes may affect our clients’ financial well-being. For example, many clients of our multi- family office who own California real estate are anxious about the impact of Proposition 19 and how to plan for it. Let’s look at the new law from a holistic, Running Point perspective—that is, with the input of several of our team members representing different financial disciplines.

Property Tax Changes Under Prop 19

Previously, Proposition 13 allowed seniors (55+) a one-time-only opportunity to sell their home, buy a different one at the same or less value and retain the tax basis of the original property. Homeowners 55+ could therefore downscale in size without incurring a property tax penalty.

Prop 13 also permitted homeowners 55+ to transfer a primary residence of any value to a child or grandchild without a property tax reassessment, regardless of how the child used that residence. A parent could also transfer other real property up to $1 million in value per qualified spouse during their lifetime or at death, while preserving the property tax basis. In other words, their children would pay essentially the same property tax as did their parents or grandparents.

Now under Proposition 19—which took effect on February 16—only transfer of a primary residence up to the current assessed value based on the property tax bill plus $1 million (as annually adjusted) qualifies for the exclusion from reassessment. The new law also requires the child/children to occupy the home as a principal residence within one year. Any other real estate transfers will be reassessed to the full market value.

The silver lining of the other provisions set forth in Proposition 19 is that it is supposed to free up current limitations of the sale of property for seniors. Seniors can now buy any home in California of any value up to three times in their lifetime and maintain their original property tax base, as long as the purchase price of the new home is equal or less than the sale value of the old home. If a home of higher value was purchased, then the incremental value would be assessed at normal rates.

Planning Considerations

In terms of transferring or selling property, there are additional planning considerations such as property title, financing conditions and valuation discounts (if a partial interest). It’s also helpful to know whether a property will be sold at some point or if it’s an asset that will be held and remain in the family for generations to come. This is why it’s so important to draw on a team like we have at Running Point, where all of your questions and concerns can be addressed by team members who represent many different disciplines.

“It’s so important to draw on a team like we have at Running Point, where all of your questions and concerns can be addressed by team members who represent many different disciplines.”

For example, I brainstormed with Running Point Tax & Consulting’s tax manager, Todd Stern, to get his thoughts on strategies that can be implemented. “Prop 19 is a property tax matter,” he said, “but there are still some income tax strategies that may enable the heirs to hold onto family properties while still avoiding property tax reassessments.”

He added, however, that there will always be tradeoffs. Todd goes into detail on these considerations on the Running Point blog (runningpointcapital.com/insights).

L to R: Tammy A. Trenta, CFA, MBA; Partner | Michael Ashley Schulman, CFA; Partner, Chief Investment Officer | Todd Stern, CPA; Tax Manager

Real Estate in the Long Run

I also sought out Running Point’s chief investment officer, Michael Ashley Schulman, for his perspective on the place of real estate in one’s investment portfolio. “We often see real estate as a desirable core asset within long-term investment portfolios,” Michael said, “and we seek to diversify clients out of state—for example, Utah, Colorado, Texas, South Carolina—into attractive residential, warehouse or bespoke opportunities with tax and depreciation benefits.”

Michael continues to actively vet real estate investments such as opportunity zone deals, 1031 exchanges and private real estate offerings for our families.

So What Makes the Most Sense?

What strategies make the most sense for a family? The short answer: It depends. Each family has different financial circumstances and different family values. At Running Point Capital Advisors, our clients benefit from the input of an experienced, multidisciplinary group of professionals—all under one roof. We start by listening to gain a clear understanding of your goals. We then work together to develop a comprehensive financial plan, presenting you with options on smart ways you can accomplish your objectives.

Planning can seem complicated, but it does not have to be. Running Point puts a team of financial, tax and legal specialists by your side to help you navigate Proposition 19 and any other financial headwinds—or opportunities—that may come your way.

Running Point Capital Advisors

101 North Pacific Coast Hwy., Suite 305 El Segundo  |  424-502-3500  |  runningpointcapital.com

Disclaimer: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-21-02