LA Law: The Continuing Mystery of Prop. 19

We have several clients who by the time they see me have already transferred, or want to transfer, the family residence to an LLC.

What is the downside of doing this, if any?

1) If the residence is held in an LLC at time of sale, and the gain was under

$ 500K, and the spouses lived in the residence 2 out of the last 5 years, they may not qualify for the $ 500K exemption on capital gains tax. Why? Because the property was held in an LLC a separate entity, not the husband+ wife, at time of sale.

2) Under Prop. 19 if the family residence is transferred to a child upon the last spouse to die, via trust or will, the child will not likely qualify for the $1M exemption under the new parent-child exemption rule. Why? Because there would be no transfer of the real estate. It would be a transfer of an LLC Member's interest in the LLC to which Prop 19 does not apply.