Tax law doesn’t just affect regular household finances. It can also have a profound impact on an individual’s legacy after they die. People need to understand and fulfill their tax obligations throughout their lives. They may also need to plan in advance to minimize estate taxes after their passing. With a thorough plan, people can minimize or eliminate the obligation to pay estate taxes based on the value of their assets.
What do people generally need to understand about estate taxes to protect themselves?
Federal estate taxes can prove costly
California has done away with its state-level estate taxes. That means that testators do not need to worry about state estate taxes diminishing what their loved ones inherit. However, federal estate taxes may still apply.
For people who die in 2025, the federal estate tax threshold is $13.99 million. An estate has to be worth more than that for federal estate taxes to apply. The tax rate is progressive. The tax rate that applies differs based on how much the estate exceeds the exemption threshold.
In some cases, the personal representative of an estate may need to pay as much as 40% of the overall estate value in taxes. People with particularly valuable resources in their names may want to consider adding co-owners to key assets, making strategic gifts to loved ones or even funding trusts to minimize tax obligations.
Learning more about estate taxes and planning appropriately can help people optimize what their loved ones inherit. Those with high-value resources often need help with tax planning in addition to establishing a basic estate plan, and that’s okay.
