When are estate taxes a concern for California testators?

On Behalf of | Jun 25, 2023 | Estate Planning |

Estate planning can be a very complicated, involved process in which people put together multiple documents to arrange for the transfer of property to their loved ones when they die. Testators seek to retain control over who receives their assets and will often try to maximize what they pass on to their beneficiaries.

Certain risk factors, like the possibility of estate taxes, may motivate people to create more comprehensive estate plans. After all, estate taxes can drastically reduce what people inherit from an estate. The property that someone owns when they die becomes the property of their estate after their death. Their estate will have to settle their debts and fulfill their financial obligations, including paying their taxes before passing remaining assets along to beneficiaries. In some cases, there will be a tax assessed on the value of the estate. When do adults in California need to worry about estate taxes?

When someone has a lot of property or sizable assets

Some people have slowly accumulated wealth over their professional lives and hold diverse portfolios worth millions. Others may only have a single asset that comprises the majority of their personal wealth. Real property and businesses are among the assets most likely to be valuable enough to trigger estate taxes.

It is the full value of the estate that matters, and the only tax California testators typically have to worry about is the federal estate tax. There is no California state estate tax. However, for those with estates worth more than $12,920,000 in 2023, the top estate tax rate can be as high as 40%. Therefore, advanced planning is often important. People move assets into trusts or make scheduled gifts to family members and other selected beneficiaries each year. When planning for tax minimization as part of a broader estate plan, testators should keep in mind that the last three years of gifts will contribute to the full value of their estate.

With proper plans in place, individual testators and their surviving loved ones can significantly reduce the taxes owed after someone dies. Putting together a comprehensive estate plan can give an individual peace of mind and allow for greater support for their loved ones when they die.