Legal Question in Real Estate Law in California

You ask an interesting question.

Normally, a change in ownership that is the result of an interspousal transfer, such as a transfer to a spouse or former spouse in connection with marriage dissolution dissolution or legal separation, does not trigger reassessment. (Rev. & Tax. Code, sect. 63 subd. (c).) As I read that section however, the transfer has to be in connection with a marriage dissolution, which does not appear to be the case here.

The transfer placing your children on title, alone, would not trigger a reassessment. Provided a timely claim of exclusion is filed, no change in ownership occurs upon the purchase or transfer, on or after November 6, 1986, of (1) a principal residence between parents and children; or (2) the first $1,000,000 of full cash value of all other real property between parents and children. (Rev. & Tax. Code, sects. 63.1 subd. (a)(1) &2, (c)(2),(h)(1).

It sounds as though he is transferring this property as part of an estate plan. I suggest that you both talk to a competent estate planning attorney, to make sure that it is done right.

One can add children to title without reassessment of the interests conveyed, although the process for making sure there isn't a reassessment varies from county to county, and it is a good idea to ask the assessor for paperwork requirements in advance to avoid hassles later on. Some assessor Web pages have more or less detailed instructions. As far as I know, there is no way a former spouse can be given an interest in real property without the fractional interest involved being reappraised. You might make local inquiry as to the probable tax increase; it might not be significant.

A bigger question here is what the motives are, and whether there is a better way. Sometimes it is necessary to look into the gift horse's mouth. If this is about estate planning, a living trust is almost always a better way to pass property than making the kids (or ex-wife) joint tenants. Also, if there is financing on the property, giving away part interests will at least be a technical violation of any due-on-sale clause in the loan. The lender might be persuaded to waive the clause, often for a fee.

Finally, be careful to avoid involvement in any plan to make the building less attractive to a creditor seeking to, for example, satisfy a judgment. Such a gift might be a fraudulent transfer and could implicate all participants in a civil action under the California Uniform Fraudulent Transfer Act, Civil Code sections 3439 - 3439.12.

You have gotten good answers, but I think it important to emphasize that it is almost universally a really bad idea to grant an interest in real property as a gift. Everyone worries about the property tax reasessment and ignores the gift tax and capital gains tax implications. The property tax issues are usually pocket change compared with the capital gains issue. It can easily cost hundreds of thousands of dollars in extra capital gains taxes if you make a gift instead of passing property by trust or will. It would be incredibly foolish for him to grant an interest in the property to you or the kids without reviewing the whole set of tax consequences, and looking at other alternatives for achieving his objectives, with a good attorney.

All of the above answers are correct, but Mr. McCormick is warning you of likely the worse economic consequence of such a transfer. Of course, if you think in the future he will get remarried or change his mind [absence does not always make the heart grow fonder] you might want him to make the transfer now, but form his view point it is best to make the property part of his trust/will estate.