Filing a Preliminary Change of Ownership Report in Estate Planning

Any property transfer in California may require filing a Preliminary Change of Ownership Report. For most people, this report is needed whenever real estate is transferred from one person to the next, even if only partially. An interest in real estate must be reported to the state for tax appraisal purposes. All 58 counties in California use the same form.

But this form is also needed whenever property changes hands outside of the context of a sale, for example, in inheritance, gifting, or as part of the process of funding real estate into a living trust. Understanding this form is important – a mistake can be costly, and failing to inform the necessary tax authorities of a transfer of ownership can incur a penalty.

What is a Preliminary Change of Ownership Report?

A Preliminary Change of Ownership Report (PCOR) is a relatively simple two-page form that provides certain details about the property being transferred, the involved parties, and the nature of the transfer. The point of a PCOR is to inform your county recorder’s office of a change of hands, which requires a reassessment of the property’s value for tax purposes.

Real estate costs taxes. The taxes incurred on real estate depend on the property's base value or the property basis. This is calculated once by a qualified professional. However, when property is transferred, it must be reassessed.

What Does Reassessment Entail?

Reassessment of a property’s value means a new basis for tax purposes, which usually means a higher property tax cost as most properties, particularly investment properties, tend to increase in value either as an effect of the housing market or due to inflation.

Reassessment is not mandatory. But a PCOR is.

Certain exemptions and excepting circumstances either automatically rule out an assessment or require an additional claim or affidavit to avoid assessment. In other words, if the nature of the transfer corresponds with a certain exemption, the property may continue to be assessed on its old basis, and the new owner will continue to pay the same property taxes as the old owner without incurring additional or greater annual taxes.

Reassessment of a property’s value is not that big of a deal if an investment owner plans to sell or transfer their real estate in just a few years. But for family homes or for properties that have risen dramatically in value, reassessment can cost the recipient of the new property a pretty penny. It can complicate estate plans, which often aim to organize the transfer of property between individuals and generations.

How is a Preliminary Change of Ownership Report Filled Out?

A PCOR consists of a two-page form with another two pages of additional information.

The form begins with a few basic preliminary fields for information, including the buyer’s information, the seller’s information, whether the property is a primary residence, the date, and the address for the county recorder to forward the new tax information.

Pages 1-4

Page 1 is otherwise dedicated to Part 1, the necessary Transfer Information.

This is a series of Yes and No questions with fields for additional information about the nature of the transfer, such as whether the transfer is subject to low-income housing requirements, whether it has an active solar energy system, whether the transfer of property is to or from a revocable or irrevocable living trust (and from whom), whether it is intended as a replacement home for a recipient over the age of 55, or for someone who lost their primary residence in a natural disaster, and so on and so forth.

Page 2 includes Parts 2, 3, and 4, and the Certification to complete the form.

Part 2 involves Other Transfer Information, such as whether the transfer is part of a partnership acquisition or merger or whether it is a gift, inheritance, purchase, or foreclosure.

Part 3 involves the Purchase Price and the Terms of Sale, with exact details of how, when, and how the property is sold.

Finally, part 4 is dedicated to supplemental property information, such as the type of property (commercial, single-family, condominium, timeshare) and the condition of the property at the time of the sale.

As with most other forms, you typically needn’t fill out every last detail. Some of the fields will pertain to you, and some will not. Once you are sure you have filled out the PCOR with all the information relevant to your particular transfer of property, you can send it to the county recorder’s office in the respective county of California.

PCOR vs. COS

Let’s say you’ve made a mistake, and your report wasn’t completely accurate or missed a few details. Or let’s say you forgot to file the report entirely. This is where a Change of Ownership Statement (COS) comes into play. This is a document the county recorder sends you with a request for additional information and a $20 fee.

You might have made a mistake if you receive this document after sending in a PCOR. If you receive this document and fail to fill it out, the county can fine you – a hefty $5,000 fine if the property in question is a primary residence and a $20,000 fine if it is an investment property. Be sure to keep an eye on your mailbox if you failed to send in a PCOR or recently sent in a PCOR, and properly fill out the incoming COS, preferably with a legal professional.

What Are the Exemptions for a Preliminary Change of Ownership Report?

A PCOR is always needed when both parties exchange property, even if neither party is human. Transfers between trusts, businesses, or between legal entities require a PCOR. However, not all instances of a change of ownership require a reassessment of the property’s value. Your property may be exempt from reassessment if:

• The transfer is between a parent and their child, and it is a primary residence.
• The transfer is between a parent and their child, with a lifetime exemption of $1 million in total value.
• The transfer is between grandparents to their grandchildren (but not backward), and it is a primary residence or $1 million for non-primary residences.
• The transfer is between two co-tenants, after the death of one co-tenant, with several caveats.
• The transfer is for a replacement dwelling for someone over the age of 55 or someone who lost their home in a disaster.
• The transfer is from or to a living trust under several circumstances.
• And more.

Reassessment exemptions can get complicated, and PCOR penalties can be severe. Don’t make a clerical error that might net you thousands of dollars in unwanted or unneeded expenses.

In a trust or will, a preliminary change of ownership report can be used to transfer ownership of real property from the person who created the trust or will (the grantor or testator) to the person or entity who will receive the property (the beneficiary).

The purpose of a preliminary change of ownership report in estate planning is to provide information about the proposed ownership change and to ensure that all necessary documents and procedures are in place before the transfer of ownership is completed. This can help to avoid any delays or issues that may arise during the transfer process. Work through your estate plan with a legal professional to ensure that your paperwork is properly taken care of. Discuss your options with an estate professional at Werner serving areas such as Newport Beach, Oxnard, and Pasadena.