Protecting Estates.
Protecting Legacies.

How does California estate tax work?

California is one of the many states that has neither an estate tax nor an inheritance tax. That means that when you die, your estate will not pay state taxes on your assets. Your beneficiaries will not owe state taxes on inherited assets.

However, the federal estate tax may still apply.

Federal estate tax requirements

For 2020, estates are exempt from federal taxes up to $11.58 million or double that amount for a married couple. If the value of your assets exceeds this threshold, the estate will owe federal tax on the remainder. Under the Tax Cuts and Jobs Act, this maximum will adjust for inflation each year until 2025.

Federal estate tax rate

The taxable portion of an estate is subject to a flat federal rate of 40%. That means if your estate is worth $13.58 million, the taxable portion is $2 million. At 40%, your estate would owe $800,000 in taxes.

Tax reduction strategies

Careful estate planning can reduce your tax burden and preserve more of your assets for your children and grandchildren. Strategies to try include:

  • Make gifts to beneficiaries during your lifetime. You can make a tax-free gift of up to $15,000 per person in 2020.
  • Establish a trust. Assets you transfer to the ownership of a trust during your lifetime are tax-exempt.
  • Create a family limited partnership for businesses and real estate. This reduces taxes by establishing a separate legal entity with you and your family members as partners.

Thinking about your estate now can help ensure your beneficiaries can enjoy the full benefits of your wealth in the future.

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