regarding property taxes. The biggest advantage is Proposition 13 - the initiative passed by voters in 1978 to keep people from being priced out of their homes by runaway property taxes. Under Proposition 13, the annual real estate tax on a parcel of residential property is limited to 1% of its assessed value. This "assessed value" may only be increased by a maximum of 2% per year as long as there is no change of ownership.
For people who bought their homes before property doubled or tripled in value, their property taxes are relatively low and care must be taken to preserve this low property tax rate.
Certain transfers of the property are not considered a change of ownership triggering a reassessment of the value of the property and, consequently, increased property taxes. For example, putting real estate in one's own revocable living trust is not considered a change of ownership. Also, transfers between spouses are not considered a change of ownership. Transfers to third parties, however, are generally considered to be a change of ownership triggering reassessment.
It is a common occurrence for children to inherit property from their parents and the law provides an exemption on reassessment for transfers between parents and children. Thus, with certain exceptions, property transferred to children after the death of their parents doesn't trigger a reassessment. On the other hand, a sudden and rather significant increase in property taxes can occur when siblings inherit real estate from their parents and one sibling buys out the other sibling(s). Here is what usually happens: when the parents' estate is settled either through probate or administration of a living trust, title to the property is often recorded in the children names' jointly. Then, sometime in the future, one or more of the siblings wants cash in exchange for his or her share of the property. When the deed is recorded transferring the property interest from one sibling to another, a reassessment is triggered and the portion of the property sold (or transferred) is reassessed, resulting in higher property taxes overall.
One way to avoid reassessments on transfers from one sibling to another is to transfer the interest while the property is still considered part of the parent's estate. This can be done prior to the property's distribution during probate or settlement of the parents' living trust. The result is that the taxing authority only sees one transfer of the property, that between parent and child(ren). The children taking title to the property can file for an exclusion from reassessment and keep their parents' low property tax rate.