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619-515-1498

Leaving a Home to a Child With Disabilities? California Just Clarified an Important Rule

For many parents of a child with a disability, the family home is more than an asset. It's stability. It's routine. It's the place where their child feels safe. So when those parents plan for the future, one question comes up again and again: "Can my child keep living here after we're gone, without losing their benefits or getting hit with a huge tax bill?"
 
A new California law just made that answer clearer.
 

1. What California Just Changed

On September 27, 2026, California enacted SB 974. The law amends the property tax rules for parent-to-child transfers under Proposition 19 to make clear that a transfer through a Special Needs Trust counts as an eligible transfer.
 
Before SB 974, Prop 19 didn't specifically address Special Needs Trusts. That created real uncertainty: would a home held in a Special Needs Trust for a disabled child keep its low property tax base, or be reassessed at today's market value? As the bill's author, Senator Kelly Seyarto, put it, families "should not have to worry that setting up a Special Needs Trust could result in unintended future tax liabilities when the home is ultimately inherited."
 
The bill passed with bipartisan support and no opposition.
 

 

2. Why the Property Tax Break Matters So Much

Thanks to Prop 13, California property taxes are based on a home's "base year value," usually what it was worth when you bought it, plus small annual increases. For families who've owned their home for decades, that value can be far below today's market price.
 
Here's a simple illustration. Say parents bought their San Diego home years ago and its taxable value today is $300,000, but it would sell for $1.1 million. At California's roughly 1% base tax rate, that's the difference between paying around $3,000 a year and around $11,000 a year, before local add-ons.
 
For a Special Needs Trust that has to stretch its funds over a lifetime, an extra $8,000 a year is a lot of therapy, care, and quality of life. Under Prop 19, a family home can keep much of that tax advantage when it passes to a child who makes it their primary residence, and SB 974 confirms a Special Needs Trust can be the vehicle for that transfer.
 

 

3. Why Not Just Leave the House to Your Child Directly?

It seems simpler to leave the house outright. But for a child who receives or may need needs-based benefits like SSI or certain Medi-Cal programs, inheriting assets directly can create serious problems. SSI, for example, has a resource limit of just $2,000 for an individual. Even when a home itself is exempt while your child lives in it, the cash, accounts, or proceeds that often come with an inheritance may not be.
 
A properly drafted third-party Special Needs Trust lets you leave assets for your child without leaving them to your child. A trustee you choose manages the property and pays for things that improve your child's life, while preserving their eligibility for public benefits.
 
SB 974 means families no longer have to choose between protecting benefits and protecting the property tax base.

 

4. What Still Has to Be Done Right

The new law removes uncertainty, but it doesn't remove the requirements. To keep the parent-child property tax protection under Prop 19, families still need to get several details right:
  • Primary residence. The home must have been the parent's primary residence and must become the child's primary residence.
  • Exemption filing. A homeowners' exemption (or disabled veterans' exemption) generally must be filed within one year of the transfer.
  • Value limit. The protection is capped. If the home's market value exceeds its taxable value by more than about $1 million (an amount adjusted for inflation), part of the difference is added to the tax base.
  • Assessor paperwork. The claim for the parent-child exclusion has to be filed with the county assessor.
  • Trust drafting. The Special Needs Trust itself must be written carefully, so it protects benefits, names the right trustee, and gives that trustee the authority to manage and maintain the home.
Small mistakes here can cost a family thousands of dollars a year, so this is one area where professional guidance pays for itself.

 

5. What Parents Should Do Next

If you have a child with a disability and own a California home, now is a good time to:
  1. Review your current trust. Does it include a proper Special Needs Trust, or does it leave assets outright to your child?
  2. Decide where your child will live. If staying in the family home is the goal, your plan should say so, and fund the costs of keeping it.
  3. Choose your trustee carefully. This person will manage the home, pay bills, and protect benefits, possibly for decades.
  4. Write a letter of intent. Share your child's routines, medical needs, and preferences so the people who follow you can keep their world steady.
  5. Coordinate everything else. Beneficiary designations on life insurance and retirement accounts should point to the Special Needs Trust, not directly to your child.

 

The Bottom Line

SB 974 is a small change in the law with a big impact for special needs families. It confirms that you can use a Special Needs Trust to protect your child's benefits and still preserve the family home's property tax advantages. But the benefits only work if the plan is built correctly.

Let's Protect Your Child's Home and Future

Lavelle Law Group helps California families create Special Needs Trusts and estate plans that keep their loved ones safe, supported, and at home.
 
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