In California, people have referred to taxes on a person’s estate following their death in several ways. Over the years, these names have been exchanged, and in many cases today, they are confused with one another frequently. Common names for the taxes include – death taxes, estate taxes, and inheritance taxes. In actuality, each type of tax refers to a different kind of asset and another person responsible for paying the tax.
California Estate Tax Attorneys
If you are worried your estate will be burdened by unexpected taxes, contact Botti & Morison Estate Planning Attorneys, Ltd. Our skilled estate planning attorneys may help you set up a specific retirement account or trust or may recommend the purchase of life insurance to help reduce the overall value of the estate subject to the tax. As each situation is different, consulting with professionals is a good idea.
To schedule your first confidential consultation, call (877) 585-1885 today. Botti & Morison Estate Planning Attorneys, Ltd. assists clients throughout the state of California including Ventura, Westlake Village, San Luis Obispo, Bakersfield, Valencia, and Santa Barbara.
Death Taxes in California
The term “death tax” is a slang term for what is commonly referred to as inheritance tax or estate tax. It is used in varying ways and may mean different things depending on the person who uses the term. Therefore, we’ll tackle the estate tax and the inheritance tax definitions to help individuals understand the taxes for which they might be responsible.
Estate tax is a tax that may be imposed upon the assets of the estate itself. Some states have their own separate estate tax laws, creating a tax payable to the state. However, California does not have an active estate tax in 2022. The state had its own state estate tax until 1982, when it was repealed by voters.
Even though California does not have an estate tax, the federal estate tax also applies to estates in the state. The federal estate tax law has a lifetime transfer exemption, which can be used to transfer assets both during someone’s life and after they pass away. The exemption is an amount on which the individual does not have to pay taxes, but anything exceeding that amount is then taxed. Once the exemption is exhausted, the transfers are taxed at a 40% tax rate.
An inheritance tax is applied to the heir’s property they will receive from the estate. Only a small percentage of states impose an inheritance tax. California is not one of those states; there is no inheritance tax.
Today, many estates are not worried about paying a California inheritance tax. But, if an individual passed away before 1982 and it has been found that there is still an asset in their estate that needs to be taken through probate, the tax may still apply. A skilled attorney can help determine if an inheritance tax should be paid on an estate of a person who passed away before 1982.
Because there are still a few states that impose an inheritance tax, if an individual dies leaving their property in one of those states, the heirs may still be subject to an inheritance tax. These states are Nebraska, New Jersey, Iowa, Maryland, Kentucky, and Pennsylvania.
Potential Tax Consequences
Now that we have defined the types of taxes levied on an estate, it is important to understand how the federal estate tax can impose a tax consequence on an estate. With proper estate planning in place, there are ways for an individual’s estate to pay fewer taxes. An experienced attorney can help create a plan.
Generally, the federal government adjusts the federal estate tax exemption limit. In 2023, the exemption limit for a single individual is $12.92 million and double that for a married couple with a total of $25.84 million. This means that an individual’s estate value must be worth more than $12.92 million before they would need to worry about paying federal estate taxes. If the estate has a value greater than the exemption, everything over the exemption would be taxed at 40% such that almost half of the value of the estate would be spent paying taxes.
It is also important to note that the federal government may decrease this amount with legislation. If an individual’s estate is close to the limit or already exceeds the limit, it is essential to pay attention to the legislation regarding this limit, just in case they need to take action in their estate plan to properly protect their assets. The federal government also adjusts the exemption limit depending on the current values of inflation. Therefore, even if an estate is currently affected by the taxes, if the exemption increases before the individual’s death, the estate may not need to worry about paying federal estate taxes.
Tax Planning Strategies
There are specific ways to create an estate plan with the federal tax exemption in mind. With the estate’s value in mind, an experienced attorney can walk through the options to protect the estate’s worth for the intended beneficiaries. It is also generally a good idea to talk with a certified public accountant (CPA) to further understand taxes consequences that may apply. Creating a plan with an estate planning attorney and a CPA creates the best way to ensure an entire estate will not be subject to a 40% tax after death.
California Estate Tax | California State Controller – This resource provides more information from the State of California State Controller on California estate taxes, who needs to pay them, and when.
Programs & Services For Seniors | California Department of Aging – This resource provides information for California seniors and the various tax programs they can receive.
Ventura Death Estate Tax Lawyers | Ventura County, CA
For California residents, an estate may be subject to both federal and state estate taxes. Through careful planning, there are a number of flexible options that can be used to minimize a client’s exposure to estate taxes, which is why it is imperative that someone who is set to inherit from a deceased individual secure an experienced California estate planning lawyer right away.
The attorneys at Botti & Morison Estate Planning Attorneys, Ltd. have over 60 years of combined experience in estate planning and can help you navigate the process. Call today at (877) 585-1885 to set up your first consultation free of charge. We happily serve residents all over California including Ventura County, San Luis Obispo County, Santa Barbara County, Los Angeles County, and Kern County.