Can someone plan to avoid estate taxes in California?

On Behalf of | Mar 20, 2024 | Estate Planning |

Estate planning is a deeply personal process in which someone provides support for their loved ones and creates a legacy. Every testator in California has unique concerns and goals, but there are some desires that are relatively universal.

For example, most testators want to maximize what their loved ones receive, a goal which requires that they minimize liabilities. Estate taxes are among the most costly issues that could arise during estate administration. Estate taxes are notorious for diminishing the overall value of the property in someone’s name when they die.

Do those putting together estate plans in California need to plan specifically for the possibility of estate taxes?

Large estates could face large tax bills

There are two types of estate taxes possible when someone dies. Regardless of where someone lives, they may be subject to federal estate taxes. State estate taxes are also an issue in certain jurisdictions. California thankfully does not assess estate taxes at the state level.

However, testators who have millions of dollars in personal holdings may still have to plan for federal estate taxes. As of 2024, the threshold for federal estate tax liability is $13.61 million. The more the estate exceeds that threshold, the higher the tax rate that applies. Those with multi-million-dollar estates who do not plan for taxes might have 40% of their property go directly to the federal government after their deaths.

How do people avoid estate taxes?

There are several strategies that can help minimize estate taxes after someone’s passing. Many people make gifts throughout their golden years. Gifts to loved ones allow them to enjoy and enhance quality of life while the testator witnesses their enjoyment of their inheritance. Other times, changing ownership of assets can help reduce tax liabilities. Some people use valuable resources, like real estate, to fund a trust. Depending on someone’s holding and estate planning goals, there may be many tactics that could help address estate tax liability.

Integrating potential liabilities into the estate planning process can help people increase what they leave for their loved ones when they die. Testators who plan for taxes and other liabilities may create a longer-lasting legacy than those who don’t plan in advance.