Inheritance, Prop 13 and Capital gains. Father is elderly and we will moving into the house to care for him.

Question

My father wants to leave me his house while maintaining Prop 13 benefits. We are considering assuming or refinancing his loan without triggering Prop 13 reassessment or capital gains. Additionally, he has a son (my half-brother) he never knew about who we want to ensure cannot attach the home. My wife and I will be purchasing the home and need protection to ensure we have clear ownership and are not at risk with the loan.

James L. Arrasmith · Answer

To maintain your father's Prop 13 benefits and avoid reassessment, he can transfer the property to you using a parent-child exclusion form, which ensures that property taxes remain the same. This transfer must be completed before his death to avoid triggering reassessment. 
 
Refinancing the loan in your name without a transfer might not be possible without triggering tax implications, but you can assume the existing loan if the lender permits. To avoid capital gains tax issues, consider inheriting the property through a trust or will, which provides a step-up in basis upon your father's death, potentially minimizing or eliminating capital gains tax. 
 
To protect the property from claims by your half-brother, ensure that your father’s estate planning documents are clear and legally binding. Using a living trust to transfer the property might be a secure option, as it can help avoid probate and ensure the property is transferred according to your father's wishes. Consulting with an estate attorney can help you navigate these steps to secure your ownership and protect your father's interests.

Q: Inheritance, Prop 13 and Capital gains. Father is elderly and we will moving into the house to care for him.