If your parents own a home or other real estate in California, it might be tempting to suggest they transfer it to you now—maybe as a gift, a joint title, or a “just in case” measure. But here’s the truth: asking for the property now could cost you and your parents way more than you think. In fact, the smart move, for your future and your parents’ future, is to encourage them to keep ownership and create an estate plan that ensures you inherit the property the right way.
Let’s break down why waiting is often the wisest option and what you can do to help your parents protect their legacy.
Why You Don’t Want That Real Property Right Now
1. You’ll Lose a Huge Tax Break
If your parents give you the property now, you inherit their original purchase price (called the “cost basis”) for tax purposes. That means if you ever sell it, you could owe massive capital gains taxes on the difference.
For example: If your parents bought their home for $300,000 and it’s now worth $1,000,000, their cost basis is $300,000. If you receive the home as a gift during their lifetime and later sell it, you’d pay capital gains tax on the $700,000 difference.
However, if you inherit the property after they pass, you get a stepped-up basis to fair market value on your parents’ date of death. This dramatically reduces or even eliminates capital gains if you sell later.
For example: If you inherit that same $1,000,000 home when your parents pass away, the stepped-up basis becomes $1,000,000. If you sell it for that same value or less, there’s no capital gains tax owed. You would only pay capital gains on any gains received in excess of $1,000,000, if you sell the property for more than $1,000,000.
2. Property Taxes Could Skyrocket
Under Proposition 19, if the property is transferred while your parents are alive, it will likely trigger a full property tax reassessment, unless it’s their primary residence and you live in it as your primary residence too. Therefore, if your parents gift you their home, your tax bill could double or triple overnight.
3. It’s Risky for Everyone
Once the property is in your name, it becomes legally yours. That means it’s vulnerable to divorce settlements, lawsuits or creditors, business liability, and bankruptcy. Your parents also lose control and possibly their sense of financial security. Even with the best intentions, things can get complicated fast.
Why You Should Wait to Inherit Your Parents’ Real Property
1. You Get the Home and the Tax Benefits
Waiting to inherit allows you to receive the property with a clean title, potential capital gains tax savings, and without triggering a property tax nightmare.
2. Probate Can Be Avoided with Proper Estate Planning
If your parents create an estate plan with a revocable living trust, the property won’t go through probate. That means no court involvement, no delays, no costly legal battles, and a smooth transfer of ownership.
3. Your Parents Stay in Control, You Stay Protected
Your parents keep the peace of mind of owning their home, while you ensure everything’s legally lined up for the future. It’s a win-win.
Here’s What You Can Do Right Now
1. Start the Conversation
Consider bringing up the conversation of estate planning with care and love. Let your parents know you want to protect their wishes and preserve what they’ve worked hard for.
2. Encourage Your Parents to Create or Update Their Estate Plan
A solid estate plan should include a revocable living trust with instructions for who inherits what to avoid probate, a power of attorney for health care (called an “Advance Health Care Directive”), a power of attorney for managing finances (called a “Durable Power of Attorney”), and an updated will.
3. Talk to a California Estate Planning Attorney
They’ll understand the ins and outs of Prop 19, property taxes, and how to set things up properly so that you and your parents make the best possible decisions. Trust us, a little planning now can save tens, or even hundreds, of thousands later.
Final Thoughts
If you’re thinking about asking your parents to give you the house now … don’t. It may feel like a shortcut, but it can backfire financially and emotionally. Remember, in California, your parents can completely disinherit you for any reason. Respect your parents, their legacy, and their freewill. Help your parents create an estate plan that keeps them protected and sets you up for a smart and tax-efficient inheritance.
Protect their legacy. Preserve your future. Start the conversation today. Our experienced estate planning attorneys can is here to help.
