When do California testators need to plan for estate taxes?

 Posted on January 02, 2024 in Estate Planning

Estate planning can be a very complicated process. People need to consider a variety of important details, including the value of their resources and the state of their relationships. Testators in California generally aspire to leave as much of their property for specific beneficiaries as possible.

To do so, they typically need to minimize certain liabilities. Taxes are one such concern. Estate taxes are potentially a major concern for those with sizable estates. There are few options for limiting estate taxes during the probate process. Advance planning is typically necessary to reduce the tax burden on an estate after someone dies.

When would someone in California need to plan to minimize estate tax obligations?

When they have millions of dollars in property

There are both state and federal taxes that can apply to an estate. The personal representative of the estate may need to file income tax returns on behalf of the decedent and the estate itself. They may also need to allocate funds to cover estate taxes based on the value of assets the decedent directly owned when they died.

California does not assess an estate tax. Therefore, only federal estate taxes apply in scenarios involving multi-million dollar estates. As of 2024, the exemption threshold for estate taxes at the federal level is $13,610,000. The more that an estate exceeds that threshold, the higher the tax rate that applies. Some estates may end up paying as much as 40% of their total value in taxes.

If a testator's estate is likely worth more than the current federal exemption limit, they may need to plan carefully. Certain strategies, like creating trusts, can reduce or sometimes even eliminate income tax obligations for people's estates.

Adding the right terms to a California estate plan can help someone leave behind the most significant legacy possible.