If they put that house in a trust before they pass, the prop 13 benefits stay with the trust as the "owner" of the house. Once it comes out of the trust, the property gets re-assessed at the current market value. My sister learned that the hard way when she decided she wanted to "buy" my half of the house my parents left in trust. The house was removed from the trust and placed equally in our names. The half that she purchased from me lost the prop 13 protection. The taxes were assessed at full market rates. Too bad. Had the house been left in trust, the annual taxes due were only $923. The rental revenue would have been great. Now she has a mortgage, higher taxes and a rental market that barely breaks even.
It’s what my parents did as well. What we will end up doing is, for whoever moves in, which will likely be my youngest brother, we’ll assess him rent and tax equal to 2/3 of the value of the property, and all of the tax due on it.
He’ll essentially pay the trust until he ‘owns’ it, though it will remain in the trust. I’ll have to look closely at how proceeds get distributed and taxed out of the trust.
Thanks for the tip.
Nothing like planning for your parents to die while they’re still alive. Pretty macabre, actually.