Summary
SB-974 makes a clarification regarding the protections of Proposition (Prop 19) and severely disabled individuals covered by Special Needs Trusts (SNT). This measure will protect severely disabled individuals from suffering reassessment on their homes that are held in SNT.
Background
Prop 19 passed in 2021, restricted the transfer of family homes between parents and their children, particularly regarding the retention of the property’s Proposition 13 (Prop 13) protected tax value. Prop 19 places several requirements to pass the Prop 13 tax base onto the next generation and avoid triggering a reassessment of the property’s tax value. The recipient must move into the home, claim it as their primary residence, and file for their basic homeowner exemption within a year of receiving the property. Even after meeting these requirements Prop 19 caps the amount of value that can be excluded to $1 million in assessed value.
These requirements become tougher to fulfill in situations where the property is held in a SNT for a severely disabled individual. While beneficiaries can occupy a property under certain circumstances, they cannot take ownership due to the property being placed in a SNT by their family.
Families use SNT to place financial assets that care for or support the future needs of their severely disabled beneficiaries. Due to the home being placed in a SNT, the party or trust holders often cannot claim the homeowner exemption since they themselves live elsewhere. The trust beneficiary cannot claim the home, or they will sacrifice the structure of long-term care the SNT was created to solve.
The Department of Health Care Services is tasked with reviewing all California SNT for compliance under both state and federal laws. While some SNT are established by court order others are planned and established by parents or family members in the long-term plan of care of a severely disabled child or dependent.
The legislature has ensured several times that administrative uncertainties and legal vagueness should not prevent individuals from meeting Prop 19 requirements. Individuals who otherwise would inherit a property but cannot due to the needs of a SNT should not lose their Prop 19 exclusion due to circumstances outside their control.
Proposal
SB-974 gives protections for severely disabled individuals whose inherited home is held in a Special Needs Trust by clarifying that Prop 19 requirements are satisfied in these situations.