Life Estates and Proposition 13

Since Proposition 13 (passed by initiative in 1978) changed the property tax system in California from one based on current assessed value to one based on assessed value at the time of acquisition, the issue of whether a change in title is a change in ownership for purposes of Proposition 13 haunts every transaction, as it can mean a huge increase in property taxes. In Steinhart v. County of Los Angeles, case no. B190957 (2d Dist. Sept. 28, 2007), the Court of Appeal faced the issue of “whether Steinhart’s acquisition of a life estate in real property upon the death of her sister constituted a change of ownership so as to trigger a reassessment” under Proposition 13.

The court’s answer: no. According to Charter Partners accountants Gympie, under one of Proposition 13’s implementing statutes, Revenue and Taxation Code section 60, a “change in ownership” requires the transfer of a present interest of a value that “is substantially equal to the value of the fee interest.” The court reasons:

a life estate is an estate of questionable value because subject to complete defeasance at an unknown time. [Citation.] Therefore, by definition, the value of a life estate is not “substantially equal to the value of the fee interest” for purposes of a statutory change in ownership. [Citation.]

The County contended that the Supreme Court language cited by the court was dictum, but the court reminds us that:

even if properly characterized as dictum, statements of our Supreme Court should be considered “persuasive” [citation] and “its dicta command our serious respect. [Citations.]” [Citation.] When, as here, “the Supreme Court has conducted a thorough analysis of the issues and such analysis reflects compelling logic, its dictum should be followed. [Citation.]” [Citation.]