Worried About California Estate Tax?  We Can Turn Your Concerns Into Peace of Mind

When planning for the future, you must consider the possible impact of estate taxes on your assets and successors. The California estate tax is a tricky and frequently misunderstood topic with significant economic effects on your estate. 

That is why you need an experienced attorney who can help you with a thorough comprehension of the California estate tax. They will guide you to make educated choices about your estate for the benefit of the people you love.

Quick Summary:

• Estate Tax vs. Inheritance Tax: Estate taxes apply to the entire value of the deceased’s estate at the federal level, while inheritance tax affects beneficiaries receiving assets, which is not applicable in California.
• Federal Estate Tax Threshold: The federal estate tax in 2024 impacts estates over $13.61 million for individuals and $27.22 million for married couples, with a top rate of 40%.
• No California Estate Tax: California does not impose its own estate tax, but residents need to be aware of federal estate taxes and other state taxes that may affect their legacy.
• California Tax Landscape: High-income tax rates in California, going up to 14.63% for top earners, plus standard sales and moderate property taxes, contribute to a significant total tax burden.
• Federal Exemptions and Deductions: The estate planning benefits include federal estate tax exemptions, marital deductions, charitable deductions, and annual gift tax exclusions.
• Total Value of an Estate: It’s important to assess the total value of one’s estate, which includes all owned or partially owned assets, to determine tax implications accurately.

What is an Estate Tax?

The Estate tax applies to property transferred after death, assessing all possessions at fair market value. This includes money, property, investments, and more, comprising the Gross Estate. Deductions are then made, such as mortgages and certain expenses, to determine the Taxable Estate.

Once deductions are accounted for, lifetime taxable donations are added to the total, and the tax is calculated. It may be reduced by available credits. For many basic estates, filing an estate tax return isn’t necessary unless the Gross Estate exceeds a certain threshold.

What’s the Difference between Estate Tax and Inheritance Taxes?

It is necessary to separate estate tax from inheritance tax. The estate tax is charged on the whole worth of a deceased person’s estate, spanning all of their property and assets at the moment of passing. The estate tax is computed based on the entire worth of the estate and is collected by the estate before the distribution of assets to recipients. The federal government charges an estate tax, although a few states have their estate tax legislation.

An inheritance tax is imposed on beneficiaries who get possessions from a deceased person’s estate. The tax is computed using the value of the assets received by each recipient, not the total worth of the estate. A handful of states in the United States charge inheritance taxes, yet the laws and rates differ greatly.

What is the Federal Estate Tax Threshold?

In 2024, the federal estate tax threshold is around $13,610,000 for individuals and about $27,220,000 for couples who are married. This was an increase from 2023 rates. Again, the federal estate tax rate can be up to 40%. State death, inheritance, and estate taxes might reach 20%. Those figures might shift dramatically depending on political winds.

Does California Have an Estate Tax?

California doesn’t impose an estate tax, but other taxes may apply after death. While there’s no state estate tax, consider the federal one. In 2024, federal estate tax is levied on estates over $13.61M, up from $12.92M in 2023. Married couples can avoid taxes on up to $27.22M using portability.

What is California’s Overall Tax Landscape?

California is known for its high tax rates. Although the state does not charge an estate tax, people are subject to high taxation on their earnings ranging from 1% to 13.53%. Also, about 1% surtax is charged on earnings surpassing $1.1 million, causing an effective top marginal tax rate of about 14.63%, the highest among U.S. states.

Furthermore, California’s overall sales tax rate is about 7.25%, with local charges of up to 3.25%. Whereas property taxes are relatively modest, with an average rate of around 0.75%, the state’s total tax obligation remains significant. 

What Are the Eligible California Estate Tax Exemptions and Deductions?

The federal estate tax is a wealth-transfer tax based on the worth of the estate of a person upon passing. California does not have an estate tax, thus only federal estate tax exemptions and deductions must be looked into. A few of the most popular exemptions and deductions are:

• Estate tax exemption. For deaths in 2023, the federal estate tax exemption is $12.92 million per person. This implies that estates worth less than $12.92 million are exempt from having to pay federal estate taxes.
• Marital deduction. A deduction like this permits you to pass on an infinite amount of assets to your partner without paying the government’s estate tax. This deduction allows you to delay estate taxes until your spouse of choice passes. 
• Charitable deductions. It allows people to subtract the worth of any assets or cash they leave to qualifying nonprofits from their estate taxes.
• Annual gift tax exclusion. This allows individuals to give money to others up to a specific amount without paying gift tax or decreasing their estate tax exemption. In 2023, the yearly gift tax exclusion is $17,000 per individual.

How Do I Determine Whether a Death Tax or an Estate Tax Will Affect Me?

Living in California, you might think the federal estate tax won’t affect you if your estate is under $13.61M. But, the definition of “estate” includes everything you own, from assets to baseball card collections. Your taxes are based on this total value, not just your main assets.

Call Our Experienced Estate Planning Attorneys Now!

When faced with the estate planning challenge in California, the process can seem overwhelming. Every detail matters from California estate tax,  ensuring your assets are protected to making end-of-life decisions. 

Sorensen Century Trusts & Estate Planning offers a personalized approach to navigating these complex issues. With a focus on Oceanside, CA, and surrounding communities, we focus in crafting plans that reflect your desires and protect your legacy.

Our Services Extend Beyond Estate Planning:

• Avoiding Probate. Safeguard your family from lengthy legal processes.
• Business Succession Planning. Ensure a smooth transition for your business’s future.
• Asset Protection. Keep your hard-earned assets secure from unforeseen claims.
• Power of Attorney and Healthcare Directives. Make crucial decisions in advance that reflect your wishes.

Don’t let uncertainty about the future hold you back. Contact us now for a free consultation and take the first step towards securing your future.