“We’re Leaving It to the Kids” — Why That Strategy Often Backfires

I hear this all the time from property owners:

“We’re just going to hold it and leave it to the kids.”

It sounds responsible. Thoughtful. Even generous.

But in practice? It’s often one of the least strategic decisions you can make—especially with income property in California.

Let’s walk through why.

The Intention Isn’t the Problem

Wanting to pass something on to your kids is a good instinct.

You worked for it. You want it to benefit your family.

But there’s a difference between:

• Leaving them an asset, and

• Leaving them a situation

And a lot of the time, it’s the second one.

1. You’re Leaving Them a Decision They’re Not Prepared to Make

Most kids don’t want to be landlords.

They:

• Don’t understand rent control

• Don’t want to manage tenants

• Live out of state

• Have their own careers and families

So what happens?

They inherit the property… and immediately need to decide:

• Keep it?

• Sell it?

• Reposition it?

• Deal with deferred maintenance?

Now they’re making a high-stakes financial decision under pressure—usually right after losing a parent.

That’s not a gift. That’s a burden.

2. One Property + Multiple Kids = Conflict

This is where things get real.

If you have more than one child, you’re not passing down a clean asset—you’re creating a partnership.

And unless there’s a clear plan, here’s what happens:

• One wants to sell

• One wants to hold

• One wants the cash

• One wants the control

Now you’ve got:

• Disagreements

• Delays

• Emotional tension layered on top of grief

I’ve seen families stall for years over this.

3. The Property May No Longer Be a Good Investment

This is the part most owners don’t want to hear.

Just because a property has been a great hold for you doesn’t mean it’s the best asset today.

Especially in coastal markets like Hermosa Beach and the South Bay:

• Values are high

• Cash flow is often low

• Insurance and expenses keep rising

You may be sitting on a property with:

• A 2–3% return on equity

• Significant deferred maintenance

• Operational headaches

Your kids aren’t inheriting your basis or your experience—they’re inheriting the current reality.

4. You’re Missing the Window to Make a Strategic Move

Here’s the part that actually costs families money.

If you wait until the property transfers:

• The decision becomes reactive

• The timeline is compressed

• The emotional component is high

Compare that to acting now:

• You control timing

• You structure the outcome

• You can reposition into something more aligned with your family’s goals

Whether that’s:

• Trading into a more passive asset

• Consolidating equity

• Creating liquidity for your kids

You’re making a proactive decision, not leaving one behind.

5. Yes—There Are Tax Benefits…But That’s Not the Whole Story

The biggest argument for holding is the step-up in basis.

And yes—that can be powerful.

But here’s what gets missed:

• Tax efficiency doesn’t fix a bad asset

• It doesn’t solve family conflict

• It doesn’t make the property easier to manage

A tax benefit should support a strategy—not be the strategy.

6. “Leaving It to the Kids” Is Often Avoidance

This is the uncomfortable truth.

Sometimes this approach isn’t about strategy—it’s about not wanting to deal with:

• Selling

• Making a big decision

• Letting go of a long-held property

So it gets deferred.

But deferring the decision doesn’t eliminate it—it just transfers it.

A Better Way to Think About It

Instead of asking:

“How do I leave this property to my kids?”

Ask:

“What outcome would actually benefit them most?”

That might still be holding.

But it could also be:

• Selling and reallocating

• Structuring ownership more intentionally

• Simplifying the asset base

7. Proposition 19 Changed the Game in California

For years, the logic was simple:

“Hold the property, get a step-up in basis, and pass it to the kids tax-efficiently.”

That’s no longer the full picture in California because of Proposition 19.

Here’s what changed:

• If your kids don’t move into the property and make it their primary residence,

  
  

  they likely lose your low property tax base

• The property gets reassessed to current market value

• That can mean a massive increase in annual property taxes

What This Looks Like in Real Life

Let’s say you own a long-held property in Hermosa Beach or the South Bay:

• Your current property taxes: ~$8,000/year

• Market-value reassessed taxes: $25,000–$35,000+/year

Your kids inherit it…

But now:

• Cash flow may disappear

• Holding becomes less attractive

• Selling becomes the default—just delayed

And Here’s the Key Point

Yes, your kids may receive a step-up in basis, reducing capital gains.

But Prop 19 can simultaneously:

• Increase holding costs dramatically

• Force a sale anyway

• Limit flexibility in keeping the asset long-term

So the old strategy of:

“Just hold it and pass it down”

is no longer as clean—or as beneficial—as it once was.

Final Thought

Your kids don’t need a property.

They need clarity, flexibility, and a position that works for their lives—not just yours.

If “we’re leaving it to the kids” is the default plan, it’s worth taking a second look.

Because the best legacy isn’t just what you leave behind—it’s how well it actually works for the people receiving it.

If you’re thinking through this with a property in the South Bay or Los Angeles, I’m happy to walk through scenarios and help you pressure-test the strategy before it becomes someone else’s decision.

Additional questions?

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