The main goal for many people putting together an estate plan is to provide economic support for their loved ones after they die. They choose specific family members to inherit certain assets and may attempt to maximize how much of their property passes to their family members.
Unfortunately, certain financial obligations can diminish what loved ones inherit from an estate. The personal representative overseeing probate proceedings for a California estate must resolve the decedent’s financial obligations, including taxes owed by the decedent or the estate, before family members inherit from the estate. Careful planning is typically necessary to limit estate tax obligations.
What estate taxes apply?
Estates probated in California are subject to federal rules as well as California state statutes. The good news for California testators and their loved ones is that the state does not collect an estate tax. However, federal estate taxes can still be a concern for a California estate.
The amount of the estate that must go toward taxes is higher than many people realize. Depending on the overall value of the estate, taxes can consume anywhere from 18 to 40% of the total value of the estate. In 2024, any estate worth $13.61 million or more is at risk of estate taxes.
How can people avoid estate taxes?
There are several estate planning tactics that can help limit or even eliminate estate tax obligations. One tactic involves making strategic gifts to family members during retirement years to slowly diminish the overall value of their holdings.
Another is to arrange to transfer as much property to a spouse as possible. People can also use trusts as a way of reducing the taxable portion of their estate. Often, those with particularly large estates may need to engage in all three of these tactics for optimal protection. There may be other solutions available as well depending on the personal holdings and family relationships of the individual considering estate tax obligations.
Understanding the massive impact estate taxes can have on a personal legacy can help people understand the importance of planning for these taxes. Those who learn about factors that could diminish their legacies can craft estate plans that optimize what they transfer to the next generation, close friends and even charitable causes.