SB 974: Special Needs Trusts and the Prop 19 Parent-Child Exclusion

A new California law, SB 974, says a court-established special needs trust can carry a family home from parent to child under Prop 19’s parent-child exclusion. That protects the parent’s lower property tax base, up to the Prop 19 cap. Governor Newsom signed it on September 27, 2026 as Stats. 2026, ch. 665, and it takes effect January 1, 2027. The text is narrow. It names only trusts set up by court order under Prob. Code, § 3604, and it says nothing about a special needs trust a parent creates in their own estate plan.

If you’re planning to leave the house in trust for a child with a disability, the rest of Prop 19 still decides the outcome. The child has to live there, the exemption has to be filed within a year, and only about $1 million of value above the parent’s tax base is protected.

What SB 974 changes

The bill adds one sentence to the definition of “transfer” in Rev. & Tax. Code, § 63.2, subd. (e)(9), the statute that carries out Prop 19’s parent-child exclusion. Here’s the subdivision as amended, with the new sentence in bold:

“Transfer” includes, and is not limited to, any transfer of the present beneficial ownership of property from an eligible transferor to an eligible transferee through the medium of an inter vivos or testamentary trust. For the purposes of this paragraph, a special needs trust established pursuant to Section 3604 of the Probate Code shall be considered an eligible medium of transfer.

That’s the whole bill. It doesn’t change the value cap, the residence requirement, the filing deadlines, or who counts as a child. It also doesn’t say whether it reaches a parent who died before January 1, 2027. The legislative record calls it a clarification of existing law, which may help a family still inside the three-year claim window, but that point is unsettled.

The Board of Equalization’s bill analysis says the bill would take effect immediately, but that analysis covered the March 25 version. The bill as chaptered is titled “An act to amend Section 63.2 of the Revenue and Taxation Code, relating to taxation,” with no urgency or tax-levy language. Under Cal. Const., art. IV, § 8, subd. (c)(1), a regular-session statute takes effect “on January 1 next following a 90-day period from the date of enactment.” For a September 27 signing, that’s January 1, 2027.

What a § 3604 trust is

A § 3604 trust is a court-supervised trust for a minor or a person with a disability, holding that person’s own money. The statute applies when a court orders, under Prob. Code, § 3602 or § 3611, “that money of a minor or person with a disability be paid to a special needs trust.” The classic source is a personal injury settlement or judgment. The court has to find that the person “has a disability that substantially impairs the individual’s ability to provide for the individual’s own care or custody,” the trust stays under the court’s continuing jurisdiction, and under § 3605 the state’s Medi-Cal and other claims get paid from what’s left when the beneficiary dies. For more on how these trusts work, see keeping government benefits after a personal injury settlement.

A parent planning for a child with a disability can use a different tool: a third-party special needs trust they create themselves, funded with their own property, with no court order and no Medi-Cal payback. The Board of Equalization’s analysis describes that kind of trust and notes that the bill “does not define or describe what a special needs trust (SNT) is.” The Assembly amended the bill in June 2026 to name § 3604 trusts specifically, after the Assembly Revenue and Taxation Committee’s analysis pointed out that the bill “does not provide a definition of a special needs trust.”

Parent-created trusts and the Board’s discretionary-trust rule

SB 974 doesn’t say a third-party special needs trust can’t carry the exclusion. It doesn’t speak to one. Those trusts fall under the general rule already in § 63.2(e)(9), which counts a transfer of “present beneficial ownership” through a trust. The Board of Equalization’s Letter To Assessors 2026/026 (Question 39) says assessors must look through a trust “to determine who has present beneficial ownership,” and that if the other requirements of § 63.2 are met, transfers of property held in a trust qualify.

The legislative record treats SB 974 as clarifying existing law rather than changing it. The Assembly committee wrote that “it would appear that existing law already authorizes a special needs trust as an eligible form of transfer,” and the Board of Equalization projected no revenue impact. That’s helpful for families with a third-party trust, but it isn’t a statute.

The closest guidance on a trust where the trustee decides who gets paid is the Board of Equalization’s Assessors’ Handbook, section 401 (2010). Where a trustee has “total discretion” to distribute among several people, the handbook says the property “is subject to change in ownership if any of the potential beneficiaries lack an exclusion.” But “if all potential beneficiaries to whom the property may be distributed under the trustee’s sprinkle power qualify for an exclusion, there is no change in ownership.” So the trustee’s discretion isn’t the problem by itself. What matters is who besides the child the trustee is allowed to pay. The handbook predates Prop 19 and doesn’t mention special needs trusts, so treat it as guidance, not a guarantee, and have the trust reviewed with that question in mind.

Section 3604 also speaks of court orders that “money” be paid into the trust. SB 974 doesn’t explain how a parent’s house would come to be held in a § 3604 trust, and the legislative analyses don’t walk through an example. Families who already have a court-supervised trust and expect a parent’s home to pass into it should get advice on the mechanics before the parent dies.

The rest of Prop 19 still applies

No kind of trust gets around the core requirements of § 63.2.

The residence requirement can’t be solved with trust language. If the child lives in a group home or a care facility, the house isn’t the child’s principal residence, and the exclusion doesn’t apply. The Board of Equalization’s analysis gives a related example: a house in a special needs trust that’s rented out to pay for the child’s care “would not qualify.” The cap matters too. On a house worth far more than the parent’s base, much of the value can be reassessed even when the exclusion applies. Our Prop 19 inherited-house guide works through that math, and the Prop 19 reassessment calculator will run your numbers.

What to do now

If your estate plan leaves the house in trust for a child with a disability, have it reviewed against Prop 19 now. The questions that matter are whether the child will live in the house, whether the trust is a § 3604 trust or one you created, how the trust gives the child the right to live there, and who will file the exemption and the BOE-19-P claim after you die. The one-year residence and exemption deadlines start running at death, and a trustee who’s grieving and new to the job can miss them. Write the steps down for your successor trustee.

If you’re already the trustee of a court-supervised special needs trust, keep the court’s orders and the trust’s terms together with the property records. An assessor reviewing a claim after January 1, 2027 will want to see that the trust was “established pursuant to Section 3604.”

Talk to a real California estate attorney

If you’re planning for a child with a disability and the family home is part of the plan, I’ll review the trust against Prop 19 and SB 974 and tell you where it holds up and where it doesn’t. Talk to Eric Ridley is a free 30-minute consultation by phone or Zoom, anywhere in California. Or call (805) 244-5291.

Frequently asked questions

What does California SB 974 do?

SB 974 (Stats. 2026, ch. 665) amends Rev. & Tax. Code, § 63.2, subdivision (e)(9) so that a special needs trust established under Prob. Code, § 3604 counts as an eligible medium of transfer for Prop 19’s parent-child exclusion. It was signed September 27, 2026 and takes effect January 1, 2027.

Does SB 974 cover a third-party special needs trust created by a parent?

The statute names only trusts established under Prob. Code, § 3604, which are set up by court order. It doesn’t address parent-created third-party trusts. Those rely on the existing rule that a transfer of present beneficial ownership through a trust qualifies. Under the Board of Equalization’s Assessors’ Handbook, a trustee’s discretion doesn’t trigger reassessment if everyone the trustee can pay qualifies for an exclusion, but the Board hasn’t applied that to special needs trusts by name.

When does SB 974 take effect?

January 1, 2027. The chaptered bill has no urgency or tax-levy clause, so it takes effect under Cal. Const., art. IV, § 8, subdivision (c)(1) on January 1 following 90 days after enactment. A Board of Equalization analysis of an earlier version said “immediately,” but that version was later amended.

Does the disabled child have to live in the house to keep the Prop 19 exclusion?

Yes. The home must become the child’s principal residence within one year, and the homeowners’ or disabled veterans’ exemption must be filed within a year of the transfer (Rev. & Tax. Code, § 63.2, subd. (a)(1)). A house that’s rented out to support the child doesn’t qualify.

How much property value does the Prop 19 parent-child exclusion protect?

The parent’s factored base-year value plus an inflation-adjusted $1 million. For transfers from February 16, 2025 through February 15, 2027, that amount is $1,044,586 (BOE Letter To Assessors 2025/009). Any market value above the total is added to the taxable value.