R&T §62 sets forth several transactions which are excluded from being deemed a reassessable “change in ownership.” The most significant exemptions are listed below:
Transfers to and from parents and their children, and from grandparent to their grandchild, if the intervening generation is dead.
- "Child” means a natural child unless adopted by another, stepchildren, children born to a parent with a registered domestic partner, adopted children, spouse of a child, some foster children.
- The exclusion is unlimited for transfers of the principal residence of transferor(s), but is limited to $1 million in “full cash value” (assessed value) for “other property” (but this is doubled for spouses).
- Grandparent-grandchild exclusion limitation: if the child already received an interest in a principal residence from parent, transfer from grandparent is treated as “other property” ($1 million limit), only applies if the intervening generation (the parent) is deceased, and only applies from grandparent to grandchild (not vice versa)
Transfers between spouses and registered domestic partners;
Transfer or creation of Joint Tenancy if the transferor remains a joint tenant under R&T §65(b):
- Only the portion transferred is reassessed;
- Creation, transfer or termination of joint tenancy is a Change in ownership except as provided in §§62, 63 (interspousal transfers) and 65 (between joint tenants and “original transferors”)
- when the joint tenancy is created, transferors become “original transferors” for subsequent transfers
- if the joint tenancy interest of the original transferors terminate, their interest is reappraised unless it vests in any remaining original transferor
- on termination of last remaining original transferor, that interest is reappraised along with all others given the prior §65 exclusion
- no reappraisal if a non-original transferor transfers to an original transferors or all remaining joint tenants
Principal residence co-tenancy, at death of co-tenant
- Two co-tenants, between them, must have owned 100% of prop as joint tenants or tenants in common;
- Both co-tenants were owners of record and continuously resided in property for at least one year prior to the transfer;
- The transfer leaves surviving co-tenant with 100%
- The property was the principal residence of both co-tenants at death;
- Claim and affidavit as to the above are filed.
- Trust transfer rules under §62(d). Transfer by a trustmaker or by their spouse or registered domestic partner, or by both, into a trust are exempted if:
- they remain the present beneficiary of the trust, or
- the trust is revocable; or
- the trustmaker retains a reversionary and in which the interest of others does not exceed 12 years.
- Rule 462.160. Excludes transfers to revocable living trusts, whether the interest is held directly or by an entity. Applies to:
- Interspousal trusts
- Parent-child/grandparent-grandchild trusts where the usual requirements are satisfied
- Proportional interest trusts
- Irrevocable trusts where the trustor is present beneficiary
- Other trusts – transfers from one trust to another which meets one of these exceptions
- Future and contingent interests are irrelevant until vested
- However, sprinkle powers to non-exclusionary parties will result in 100% reassessment, unless all beneficiaries are spouse and/or children to whom excludable transfer could be made, even if there is a power to invade principal
- Non-pro rata distributions possible, but property value must not exceed child’s interest in estate
- Transfers out of trust are ok if:
- It’s a transfer from revocable trust to grantor;
- There’s a reversionary interest back to the trustmaker within 12 years;
- From an interspousal trust to spouses;
- To a trust for parent, child, grandchild;
- And the interest is proportional.
Transfers between and within business entities (such as limited family partnerships or LLCs):
- Generally, transfer of ownership interest within an entity holding property (even if held by trust) is not reassessed unless:
1) A person or entity (including trusts) obtains direct or indirect control from the original owners of more than 50% (or a corporation: look at voting stock; LC/LPs: look at capital & profits). This will result in ALL realty being reassessed.
2) Where realty is transferred to entity under proportional exclusion, persons holding entity after transfer are deemed “original co-owners;” if the original owners transfer a cumulative amount > 50%, the property will be assessed.
- Proportional ownership interests into an entity are excluded from reassessment if:
- Transfers result solely in change of method holding title,
- The proportional ownership interests of the transferors and transferees in each parcel remain the same
- Transfers pursuant to statutory conversions and mergers won’t be assessed if:
- The surviving entity succeeds to assets, or jurisdiction treats it same as a converting entity,
- The partners/members maintain the same ownership interest.
Other transfers exempted from reassessment as a “change in ownership”:
- Transfers which are subject to a lease of 35 years or more
- Transfers done merely to perfect title, or which create or change a security interest;
- Transfers reserving an estate for years/life to transferor (with exceptions).