TL;DR

• A Qualified Personal Residence Trust (QPRT) drafted before Proposition 19 took effect can now backfire on property taxes.
• If the QPRT’s fixed term ends on or after February 16, 2021, the home can be reassessed to current market value when it passes to the children — unless a child uses it as their own principal residence.
• The parent generally cannot simply rent the home back after the term ends without consequences, and siblings would have to move in together to qualify for the exclusion.
• This trap is sitting quietly in many older estate plans, and it surfaces only when the term ends — often a large, unexpected property-tax increase.
• If you have an existing QPRT, this is worth reviewing now, before the term ends, while options may still exist.

A planning tool that Prop 19 turned into a trap

For decades, the Qualified Personal Residence Trust was a favored estate-planning tool for California homeowners with valuable homes. The idea is elegant: you transfer your home into an irrevocable trust, keep living in it for a fixed number of years, and at the end of that term the home passes to your children — removing a large asset from your taxable estate at a reduced gift-tax cost. Families set these up years or even decades ago, on the reasonable assumption that when the home eventually passed to the children, the parent-child exclusion would protect the property-tax base, as it always had.

Proposition 19 changed that assumption, and in doing so turned a well-intentioned plan into a potential trap. If your QPRT’s fixed term ends on or after February 16, 2021, the home may be reassessed to its current market value when it passes to your children — potentially a very large property-tax increase on a home that has appreciated significantly. Many families have no idea this is waiting for them.

Why the QPRT now backfires

The trap comes from how Proposition 19 narrowed the parent-child exclusion. Under the old rules, a parent could pass a home to a child without a property-tax reassessment regardless of how the child used it — so when a QPRT’s term ended and the home passed to the children, the low tax base carried over. That is exactly what the families who set up these trusts were counting on.

Under Proposition 19, the parent-child exclusion generally applies only if the child makes the home their own principal residence (and meets the filing and timing requirements), and even then the protected amount is capped. So when an older QPRT’s term ends and the home passes to children who do not move in and live there, the transfer is generally reassessed to current market value. The very mechanism that made the QPRT work — the home passing to the children at the end of the term — is now the moment that can trigger the reassessment.

The rent-back and sibling problems

Two further wrinkles make the trap harder to escape:

• The parent usually wants to keep living there. Most parents who set up a QPRT intended to remain in the home after the term ends — which they generally can, but only by paying rent to the trust or to the children who now own it. After Proposition 19, that arrangement means the children are not using the home as their own principal residence, so the exclusion generally does not apply and the home is reassessed.
• Siblings can’t easily share the exclusion. If several children are entitled to the home at the end of the term, they would generally all need to move into the home together and share it as their principal residence to qualify for the exclusion — rarely realistic for adult children with their own lives and households.

The result is that the most common real-world use of a QPRT — parent stays in the home, multiple children inherit — is exactly the pattern that now triggers reassessment.

What you can do — but the timing matters

If you have an existing QPRT, the worst thing to do is nothing, only to discover the reassessment when the term ends. Depending on your situation, the documents, and the timing, there may be ways to mitigate the issue — but the options are generally far better before the term ends than after, and some require action well in advance. This is genuinely individualized, fact-specific work that turns on the trust’s terms, the home’s value, your family’s circumstances, and the tax picture, and it should be coordinated with your tax professional. 

The practical message is simple: if you set up a QPRT years ago, have it reviewed now, while there may still be time to act. We can review your existing QPRT, explain what Proposition 19 means for it, and help you understand your options before the term ends. For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

What is a QPRT and why is it affected by Proposition 19?

A Qualified Personal Residence Trust transfers your home into an irrevocable trust while you keep living in it for a fixed term, after which it passes to your children — reducing estate and gift-tax exposure. Proposition 19 affects it because the home passes to the children at the end of the term, and under Prop 19 that transfer is generally reassessed to market value unless a child makes the home their own principal residence.

Will my old QPRT trigger a property-tax reassessment?

It may, if the fixed term ends on or after February 16, 2021 and the children who receive the home do not use it as their own principal residence. Because most QPRTs were set up with the parent intending to stay in the home and the children not living there, many older QPRTs are exposed to this reassessment. Having yours reviewed is the way to know.

Can I just rent my home back from my children after the QPRT term ends?

You generally can continue living there by paying rent to the trust or the children, but that arrangement means the children are not using the home as their own principal residence — so the parent-child exclusion generally does not apply and the home is reassessed under Proposition 19. This is one of the main reasons older QPRTs now backfire, and it is worth planning around in advance.

What happens if multiple children inherit the home through a QPRT?

To qualify for the parent-child exclusion under Proposition 19, the children generally would all need to move into the home together and use it as their shared principal residence — rarely realistic for adult children with separate households. If they do not, the transfer at the end of the term is generally reassessed to market value. This is a common and difficult wrinkle in older QPRTs.

What should I do if I have an existing QPRT?

Have it reviewed now, before the term ends. Depending on the trust’s terms, the home’s value, and the timing, there may be ways to mitigate the reassessment — but the options are generally better before the term ends than after, and some require advance action. This is individualized work best done with an attorney and coordinated with your tax professional.