State Senator Elaine Alquist, Santa Clara , CA – Chair Senate Subcommittee on Aging and Long-Term Care
State Senator Lois Wolk, Yolo County , CA – Chair Assembly Revenue & Taxation Committee.

Subject: DISAPPOINTING FINAL FORM for SJR-20 Resolution 57

Summary: We originally proposed what became SJR 20 for two primary purposes:

1. To correct an estate tax inequity that exists between senior couples and surviving spouses to the very limited extent of its application to selling their primary residence.
2. By correcting the inequity, also motivate senior couples (age 65 & over) to change their place of residence, if doing so meets a personal need. Because many senior couples are in pre-Proposition 13 ownerships positions, the likely effect would be increase property tax revenue, and help reduce state and local government budget deficits.

The final SJR 20, as modified from our original, accomplishes neither objective.

Estate tax law provides that upon the death of one spouse, ALL of the couple’s property receives step-up in taxable estate basis to the value at the time of the first spouse’s death. Virtually all couples who have enough wealth to do estate planning are aware of this law, and plan their affairs accordingly. ONE effect is that if their primary residence is of a value where its sale would result in large capital gains taxes, they will not sell and relocate from it. And, they don’t want to return all their Prop 13 savings to the IRS and state. Even if they don’t need as large a home, or want to be near children or grandchildren, or have other personal reasons to move, they will not do so.
When one of the spouses dies, the capital gains tax is avoided, so the surviving spouse can move. We believe it would be much better and more fair for the senior couple to be able to move while both are alive without being financially penalized.
Our purpose in proposing the legislation was to provide senior couple this equitable flexibility. Our hope was that legislators would understand the inequity and be willing to correct it, to the limited extent of relieving the capital gains tax on sale of a personal home.
The added state and local financial benefit of senior couples moving earlier would be that the home would be sold to a new buyer at a higher price than the senior couple’s Proposition 13 basis. This would increase property tax revenue, consistent with the provisions of Proposition 13. Approximately 50% of that revenue statewide would go to local schools, and thus reduce the state’s cost for education. The other 50% would go to local governments, and thereby increase the funding available for local services.
SJR 20 was modified to only provide a limited benefit to senior couples if they go into a long term care facility, so is clearly designed to benefit special interest health care providers, but does absolutely nothing to alleviate other senior equity issues. Its effect on tax revenue would be so negligible as to not be worth further time and effort.
The interaction between property taxes and capital gains taxes in California is unique. It’s been 13 years since (TRA 97), the capital gain exemption, has been changed upward from $125,000 to $250,000 per person when selling the family home. Please check the effect of capital gains taxation on home sales (see research by Hui Shan of the Federal Reserve http://faculty-staff.ou.edu/G/Robin.M.Grier-1/taxbreak.pdf and her homepage: http://sites.google.com/site/huishanspersonalhomepage/. The ‘lock-in’ affect on senior mobility creates stress on property tax increases under Prop 13, whereas in other states property taxes are usually up to market.

Locking in seniors who are supposedly house rich or well off is short-sighted and at the expense of increasing property tax revenue and making neighborhoods more homogenous. The fact that SJR-20-Resolution 57 passed all tax committees, the assembly and senate with zero no votes places the legislation on the watch list.
Unless you are willing to return the legislation to its original form, we advise you to drop this issue and spend your time on larger issues facing California .


James U. Hall, retired estate planner
John E. Upton, former County supervisor

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: