As a California resident, your assets are not subject to state estate taxes after you die. However, there may be other laws or taxes that apply to your estate after your passing, so it is important that you recognize and understand your obligations.
Estate tax and inheritance tax are different, but as a California resident, neither applies to you. Depending on the value of your property, though, you may still have to pay a federal estate tax.
Recognizing federal estate tax obligations
Per SmartAsset, whether you must pay federal estate tax after your passing depends on if the value of your estate exceeds the federal exemption amount in place that year. This amount tends to change from one year to the next.
In 2018, you would have had to pay federal estate taxes if your estate’s value exceeded $11,180,000. In 2019, you would have had to do the same if your estate’s value exceeded $11,400,000, and in 2020, you would have to do so if your estate was worth $11,580,000 or more.
How much of your wealth might you stand to lose to federal estate taxes? It depends, but at the high end, you may have your estate taxed by as much as 40%.
Reducing the value of your estate
You may be able to take certain estate planning steps to reduce your federal estate tax obligations. By gifting your kids, grandkids or other loved ones up to $12,000 of your estate every year, you may be able to lower the value of your estate enough to avoid paying federal estate taxes.
You may also be able to use a trust to lower your estate’s value. For example, placing assets into an irrevocable life insurance trust may reduce the size of your estate until it is low enough to forestall federal estate taxes.
There are numerous other steps that may also reduce your estate tax burden and help you maintain more control over everything you worked hard to amass. It is also important to revisit your estate plan periodically because major life changes have the capacity to impact the value of your estate.