A Prop 19 situation I sometimes encounter with Silicon Valley families isn’t one child inheriting a house. It’s two or three siblings inheriting the family home together, and one of them wants to live in the family home and keep Mom and Dad’s low property tax. The natural move is for that sibling to buy the others out. The catch is that the way the buyout is set up can decide whether the whole house keeps the parents’ tax base or only part of it, and in a place where a 1970s purchase price can be a small fraction of today’s value, that can mean thousands of dollars a year for as long as your sibling owns the home.
This piece walks through how it works in plain English, what the real estate side of it looks like, and why it pays to bring a Realtor into the conversation before anyone signs a deed or calls a lender. It’s part of my guide to Prop 19 for Silicon Valley families.
Key Takeaways
Summary: Prop 19 protects a home passing from parents to children, not a sale between siblings. Letting the parents’ trust give the house to one child and equal value to the others, sometimes with a loan against the house, can keep the whole tax break, and getting the value right early is what makes the plan work.
From my practice: A pair of brothers I worked with had co-owned their family home for nearly twenty years, and when it came time to decide, neither one wanted to take on the other’s share. They chose to sell and let the open market settle the question for them. The cottage drew six offers, and even after a $1.6 million cash investor walked away two days into escrow, it closed all cash at $1,400,005.78, $125,006 over asking. When siblings share a house, a real market test is the clearest answer to what one owes the other.
Prop 19 in Plain English
Under Prop 13, your property tax is based on what the house was worth when you bought it, plus no more than 2% a year. That’s why parents who bought in Willow Glen, Cambrian or Los Gatos decades ago often pay a fraction of what their newer neighbors pay. Prop 19, which took effect in February 2021, tightened the rules for passing that low tax base to your kids.
Today a child can keep the parents’ assessed value only if the house was the parents’ primary residence, the child makes it their own primary residence within one year and files for the homeowners’ exemption, and the child files a claim (form BOE-19-P) with the county Assessor. There’s also a cap. If the home’s market value is more than the parents’ assessed value plus $1,044,586 (the current limit, which is adjusted every two years), the amount over that line is added to the tax base. The part people miss is that all of this is about parent to child. A sale between brothers and sisters isn’t covered at all.
Why “Just Buy Your Sister Out” Can Backfire
Say a brother and sister inherit their parents’ Willow Glen home equally through a trust. The trustee deeds the house to both of them, and then the brother takes out a mortgage and buys his sister’s half. The half he received from his parents can qualify for the tax break, but the half he bought from his sister is a sibling-to-sibling sale, so that half is generally reassessed at market value.
It feels like the same result either way, since the brother ends up with the house and the sister ends up with her money. The order of the steps is what changed the tax bill, and he’ll carry that difference for as long as he owns the home. Once the deeds are recorded, it’s very hard to go back and redo it.
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Estimate My Property Taxes →The Better Route: Let the Trust Divide Things Unevenly
Most living trusts let the trustee divide things up unevenly, as long as each beneficiary ends up with the same total value. Attorneys call this a non-pro rata distribution, which is a formal way of saying the house can go to one child while the savings, investments or other property go to the others. Because each child receives their share straight from the parents’ trust, the whole house can be treated as a parent-to-child transfer. The State Board of Equalization’s Prop 19 guidance indicates this long-standing approach still applies.
The important detail is that it has to happen inside the trust, before the house is deeded out to anyone. That’s why timing matters so much, and why the family should have a plan before the trustee starts signing documents.
When the House Is Most of the Estate
Here in Silicon Valley, the house is usually the biggest thing in the trust by a wide margin. If the home is worth $2.1 million and there’s $300,000 in a brokerage account, there isn’t enough on the other side of the scale to make things even. In that case the trustee may be able to take out a loan against the house, give the house to the child who’s keeping it (along with the loan), and give the loan proceeds to the other siblings. The State Board of Equalization has addressed this kind of structure in its guidance.
Not every trust gives the trustee the power to borrow, and not every lender will make a loan to a trust, so this is where an experienced estate attorney and a lender who does these loans regularly come in. The child who will live in the house usually needs to qualify for the loan too, which is worth knowing before anyone gets attached to a plan.
A San Jose Example
The trust holds the Willow Glen house worth $2,100,000, with the parents’ assessed value at about $235,000, plus $300,000 in investments. Each sibling’s half is worth $1,200,000, and the brother wants the house.
| Step | Amount |
|---|---|
| House Value | $2,100,000 |
| Cash In Brokerage Account | $300,000 |
| Each sibling’s share | $1,200,000 |
| Loan the trustee takes against the house | $900,000 |
| Brother receives the house along with the loan | $2,100,000 minus $900,000 = $1,200,000 net |
| Sister receives the investments plus the loan proceeds | $300,000 plus $900,000 = $1,200,000 |
Each sibling receives $1,200,000 of value, and both receive it from the parents’ trust. If the brother moves in within a year and files the paperwork, his assessed value would be about $1,055,414. That’s the parents’ $235,000 plus the $820,414 by which the house’s value exceeds $235,000 plus the $1,044,586 limit. If the whole house were instead reassessed at its $2,100,000 market value, the way it would be for a buyer off the street, the tax base would be roughly double. At a Santa Clara County tax rate of a little over 1%, that gap is more than $10,000 a year, and it grows every year after. The exact structure depends on the trust, the lender and the attorney’s plan.
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A real example: Three family members inherited an estate house through a trust, and rather than argue over what it was worth, they let the open market answer. After five weeks of clearing and light prep, the house listed at $1,250,000 and went under contract in a week at $1,260,001, as-is with no inspection or appraisal contingency. A sibling buyout never gets that kind of market test, so when a family goes the buyout route, I build the same evidence up front: recent comparable sales, a pre-listing inspection and a written opinion of value that the lender, the attorney and every sibling can work from.
Why Talk to a REALTOR® Before Anyone Signs Anything
Most families call the attorney first, which makes sense, and they only call a REALTOR® if the buyout falls apart and the house has to be sold. I’d suggest changing that order a bit. Nearly every decision in a sibling buyout rests on one number, what the house is worth today, and the real estate questions tend to show up long before the legal paperwork is done. These are the places where I’m usually most useful.
Getting to a value everyone trusts
The sister wants to be paid fairly, the brother doesn’t want to overpay, and the lender needs a number that holds up. A lot of parents’ homes around here are original or close to it, with a 1960s kitchen, older wiring and a roof nobody has looked at in years, and that makes value harder to pin down than it looks online. I pull the sales that actually compare, walk the house, and give the family a realistic range before the appraiser shows up. When every sibling is looking at the same evidence, the conversation usually gets a lot calmer. The same work also helps with the date-of-death value your CPA will ask about, so it rarely goes to waste.
Knowing what the house would net if you sold it
A buyout only makes sense if it beats the alternative. I lay out what the house would likely sell for, what preparation it would need, and what everyone would walk away with after commission and closing costs. Sometimes that shows the sister is better off taking a buyout at a fair appraised value, because she skips the prep, the showings and the commission. Other times it shows the brother would be stretching to keep a house that costs more to own than he expected. Either answer is worth having before the family commits.
Seeing what keeping the house really costs
The low property tax is only one line in the budget. A house that’s been lived in for forty years often needs a roof, a sewer lateral, updated electrical or foundation work, and homeowners insurance has gotten harder to find and more expensive in parts of Santa Cruz County and the hills above Los Gatos. The child keeping the house is also taking on the loan the trustee used to pay out the others. I help families put real numbers on those costs so the decision is based on the whole picture and not just the tax savings.
Keeping the clock in view
The child has one year to move in and file for the homeowners’ exemption, and a loan to a trust can take longer to arrange than a regular mortgage. If the plan changes halfway through and the house ends up being sold, a year goes by fast when there’s a lifetime of belongings to sort through. Starting early keeps every option open.
Lining up the right people
Only a handful of lenders make loans to trusts for this purpose, and the family needs an estate attorney who has handled non-pro rata distributions before. After more than 23 years and 460+ closed transactions, many of them estate and trust sales, I know who does this work well and can make those introductions.
Having a neutral voice at the table
Family homes carry a lot of feeling. One sibling grew up in the back bedroom and can’t picture strangers living there, while another lives out of state and just wants it settled. Having someone who works with families in this situation every week helps keep the discussion on value, timing and cost, which leaves more room for the relationships.
What Can Get in the Way
- The trust has to allow it. If the trust requires every asset to be split equally, this approach may not work without going to court.
- Finding a lender. Not every lender will lend to a trust, and the child keeping the house usually has to qualify, so bring the lender in early.
- Agreeing on value. Every sibling has to sign off on the number, usually backed by an independent appraisal.
- The one-year deadline. The child has to move in and file for the homeowners’ exemption within a year, and file the BOE-19-P.
- Paperwork for the Assessor. Expect to show the trust’s language and exactly how the distribution was carried out.
- The parents’ residence requirement. The exclusion only applies if the house was the parents’ primary home, so a rental or second home doesn’t qualify for this treatment.
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Who Does What
On a sibling buyout, I focus on the value, the numbers behind keeping versus selling, and the backup plan if the family decides to sell after all. The estate attorney handles the legal structure and the trust paperwork, and this is one area where experienced legal advice is well worth paying for. The lender handles the trust loan, and your CPA handles the income tax side. When all four are talking from the start, families avoid most of the expensive surprises.
For the general mechanics of an heir buying the property, see can an heir buy the house from the estate, and for the full Prop 19 rules, head back to my guide to Prop 19 for Silicon Valley families. If your family is just starting this conversation, I’m happy to walk through the numbers with you before anyone makes a decision.
Frequently Asked Questions
Does Prop 19 apply if I buy out my sibling’s share of an inherited house?
If you inherit the house together and then buy your sibling’s share with your own money, that part is a sibling-to-sibling sale and is generally reassessed. Having the parents’ trust give you the whole house, and give your siblings other assets of equal value, can often avoid that.
What is a non-pro rata distribution?
It’s the legal term for splitting a trust unevenly by asset while keeping the total value equal for each beneficiary, for example the house to one child and cash to another. When the trust allows it, the whole house can be treated as passing from parent to child.
Can the trustee borrow against the house to pay out a sibling?
Sometimes, if the trust allows the trustee to borrow. The trustee takes a loan against the house, gives the house to the child keeping it, and gives the loan proceeds to the others. An estate attorney should set it up, and you’ll need a lender that makes loans to trusts.
Does the $1,044,586 limit still apply when the trust gives one child the house?
Yes. If the home’s market value is more than the parents’ assessed value plus $1,044,586, the amount over that line is added to the child’s assessed value.
Do I still have to move in to keep my parents’ property tax?
Yes. The child has to make the house their primary residence and file for the homeowners’ exemption within one year, and file form BOE-19-P with the Assessor.
When should we bring in a Realtor?
Before the trustee deeds the house to anyone. The value of the house drives the buyout amount, the size of any loan and whether keeping the home makes sense at all, so it pays to get a clear read on value and on the sell-it alternative early.
What if my siblings and I can’t agree on what the house is worth?
An independent appraisal is the usual tiebreaker, and a Realtor’s review of recent comparable sales helps everyone understand what the appraiser is likely to see. If the family still can’t agree, selling on the open market lets buyers settle the question.
Sources and Further Reading
- California State Board of Equalization: Proposition 19
- California State Board of Equalization: Change in Ownership FAQ
- Santa Clara County Office of the Assessor
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