Prop 19 Equalization Loans in California

A Prop 19 equalization loan is a loan to a trust or probate estate that pays the other heirs their share of the family home in cash, so the home can be distributed to the one child who will live in it. Done before distribution, and paired with that child moving in and filing for the homeowners' exemption within one year of the parent's death, the buyout is built to keep the parent's low Proposition 13 tax base instead of a reassessment to market value. On a long-held California home that can mean thousands of dollars a year for as long as the child lives there.

How Prop 19 Equalization Works

When a parent dies and leaves a California home to children, Proposition 19 (effective February 16, 2021) lets the home pass without a reassessment to current market value if three things are true: the home was the parent's principal residence, it becomes a child's principal residence, and that child files for the homeowners' exemption within one year of the date of death. The family also files a Claim for Reassessment Exclusion for Transfer Between Parent and Child (form BOE-19-P) with the county assessor. That claim is on time within three years of the transfer, or before the home goes to a third party, whichever is earlier. Step by step: Filing the BOE-19-P.

There is a value limit. If the home's market value is more than its factored base year value plus $1 million, the excess is added to the assessed value. The $1 million figure is adjusted every other February; it is $1,044,586 for transfers from February 16, 2025 through February 15, 2027.

Not every child has to live in the home. The State Board of Equalization says at least one child who received the home must live there and file the exemption on time. The equalization loan solves a different problem: one child wants to own the home outright, and the others want their share in cash.

Why the Buyout Happens Inside the Trust

Proposition 19 covers transfers between parents and children. It does not cover transfers between siblings. If the trust or estate deeds the home to all of the children and one of them later buys the others out, that purchase is a sale between siblings, and the shares bought can be reassessed to market value.

An equalization loan avoids that sequence. The trustee or executor borrows against the home, the departing heirs are paid their share from the trust or estate, and the home is then distributed to the child who is keeping it. In probate, the executor pays the departing heirs, and the court's order of distribution gives the home to the child who stays. This is often called a non-pro rata distribution: each heir receives full value, but not the same assets. See non-pro rata distribution in our glossary.

Why Timing Matters So Much

The one-year clock starts on the parent's date of death. That is the date of transfer for a home inherited through a trust, a will or intestate succession, no matter when the successor trustee distributes the property or when the court approves final distribution. The estate does not have to be finished for the child to move in and file the homeowners' exemption, but the family needs to settle who keeps the home well before the first anniversary.

Families regularly lose the Prop 19 exclusion not because they do not want it, but because the estate process took longer than expected and suddenly the deadline is two months away. At that point, you need a lender who can actually fund in weeks, not a bank that needs three months of processing time.

A Worked Example With Real Numbers

Here is an illustrative California scenario. The tax figures assume a 1.2% effective rate; your county's rate and local assessments will differ.

Maria and her two siblings inherit their mother's home in Santa Ana. The property was purchased in 1978 and has been governed by Proposition 13 ever since. For property tax purposes, it is assessed at $210,000. The current market value is $950,000.

The trustee applies for a Prop 19 equalization loan. We value the property in-house (no appraisal fee), confirm the loan-to-value (LTV) fits, about 67% here, and fund $634,000 to the trust about 7 days after the file is complete. The trustee pays Maria's brothers and distributes the home to Maria. She moves in, files the homeowners' exemption within a year of her mother's death, and files the BOE-19-P with the Orange County assessor.

Because the $740,000 gap between market value and assessed value is under the $1,044,586 limit, the whole gap is excluded and the assessed value stays at $210,000. Annual taxes stay near $2,520 instead of $11,400. Financing $634,000 at 10% with 1.5 points and refinancing after 10 months costs about $62,000 plus title and escrow (1.5 points is $9,510; ten months of interest is about $52,800). At $8,880 a year in tax savings, the loan cost is recovered in about seven years, and Maria keeps the family home.

Our Process

1. Day 1: Initial review and term sheet

   You call or submit an inquiry. We review the basic facts: property location, estimated value, current assessed value, number of co-heirs, and amount needed. If the numbers work, we issue a preliminary term sheet within 24 hours.

2. Days 2 to 4: Application and valuation

   You submit the full application and supporting documents. We conduct our in-house BPO valuation and open title.

3. Days 4 to 8: Underwriting

   We complete underwriting using the valuation and title results. No surprises at this stage if the initial review went smoothly.

4. Days 7 to 10 (Typical) or 10 to 14 (Complex): Closing and wire

   Loan documents are prepared and signed. Escrow closes and wires the funds to the trust's bank account, and the departing beneficiaries are paid from that account. The trustee distributes the home to you, and you move in and file the homeowners' exemption and the BOE-19-P.

After you hold clear title, typically when the trust is wound down or probate closes, you can refinance the equalization loan into a conventional mortgage at a lower rate.

Rates and Fees

We publish our rate range here rather than asking you to call first. Terms depend on the property and the scenario, so these are typical ranges, not a guaranteed rate.

On a $600,000 equalization loan, origination at 1.5 points is $9,000. Monthly interest at 10% is $5,000. If you refinance after 10 months, total financing cost is approximately $59,000. Compare that to the $177,600 in 20-year tax savings in the Santa Ana example above: at $8,880 a year, the financing cost is recovered in about seven years.

What Documents You Will Need

• From the trust or estate: The trust agreement (or relevant sections) or Letters Testamentary, showing the trustee's authority over the property and the distribution instructions.
• Property information: Current property tax bill, address, any existing mortgages.
• The trust's distribution terms: Your attorney's confirmation that the trustee can distribute the home to one beneficiary and cash to the others.
• Buyout agreement: A written agreement among the co-heirs on the buyout amounts, even if it is just an email exchange.
• Identification: Government-issued ID for the borrower.
• Evidence of residency plan (optional): Not required for loan approval, but useful to have for the BOE-19-P filing. Keep your moving documents and utility setup records once you move in.

Frequently Asked Questions