Navigating Estate Taxes at the State and Federal Level

The California Estate Tax

Since California taxes residents heavily, many people mistakenly believe the state will take a big bite out of their inheritance.

However, California eliminated its inheritance tax nearly a half-century ago. Since 1982, the state has not imposed any form of “death tax” or “estate tax.” However, unprotected estates can be affected by taxation or other financial penalties.

The Federal Estate Tax

While California no longer has any estate tax, the federal government still does. The federal estate tax can affect any unprotected estate valued at $11.7 million or above; this amount will increase to $12.06 million in 2022.

Any amount exceeding the minimum criteria for the federal estate tax is called the “taxable estate.” When an estate exceeds the minimum criteria, it can be taxed up to 40% of its value.

The exact percentage is determined by the taxable value of the estate. If the “taxable estate” is between:

$1,000-$10,000, the estate is subject to a marginal tax rate of 18%.

$10,000-$20,000, the estate is subject to a marginal tax rate of 20%.

$20,000-$40,000, the estate is subject to a marginal tax rate of 22%.

$40,000-$60,000, the estate is subject to a marginal tax rate of 24%.

$60,000-$80,000, the estate is subject to a marginal tax rate of 26%.

$80,000-$100,000, the estate is subject to a marginal tax rate of 28%.

The marginal tax rate increases by 2% in $20,000 increments up to $1 million; any estate valued at more than $1 million is subject to a marginal tax rate of 40%.

Avoiding the Federal Estate Tax

Avoiding the federal estate tax can be challenging, since the Internal Revenue Service (IRS) will look at the total value of an individual’s assets, including assets they do not own but otherwise hold an interest in. This means, an individual estate may not be fully protected even if assets are shielded by a trust.

However, an experienced California estate planning attorney can help you identify and design solutions specific to your estate’s unique needs. Married couples, for instance, may be eligible for an estate “portability” exemption. This means, if one partner passes away, their spouse effectively inherits any remaining portion of their unused estate tax exemption up to $12.06 million.

By using the portability exemption, couples can plan to protect up to $24.06 million in assets.

However, this exemption is not automatic: the surviving spouse will have to file special paperwork with the IRS to keep their assets safe and untaxed.

The portability advantage is also time-sensitive, in that the surviving spouse of a deceased person will have to submit attesting documents to the IRS within two years of the decedent’s passing.

How an Attorney Can Help

The portability exemption is available to most married couples with a high net worth. However, this exemption is imperfect and only protects assets up to $24.06 million. Anyone whose estate exceeds this amount will need an estate planning attorney’s help to identify alternate asset protection strategies.

The Law Firm of Kavesh, Minor & Otis, Inc. has years of experience helping California residents plan and protect their legacies. No matter how much your estate is worth, our hard-working and resourceful team of legal professionals can find the right solutions to safeguard your assets. Send us a message online to schedule your free initial consultation today.

Related links:

Do You Need to Speak With an Estate Planning Attorney?

If you need to speak with an experienced estate planning lawyer, please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. Our estate planning law firm proudly serves clients throughout California from our main office in Torrance, as well as those in Redondo Beach, Manhattan Beach, Hermosa Beach, Segundo, San Pedro, and Rancho Palos Verdes.

When You Want the Very Best for Your Loved Ones, Choose Us.

Experience and Expertise. Estate planning and post-death administration are all we do. Our attorneys have over 70 years of combined expertise in the field, and three of our attorneys have passed an additional Bar examination and peer review process to become State Bar Certified Specialists in Estate Planning, Trust and Probate Law. Two of our attorneys also have Master’s Degrees in Tax Law, giving us unique insight into how estate tax and income tax will affect your family’s inheritance.

Customization and Attention to Detail. Before we create or update your estate plan, we get to know you, your goals, and what matters to you most. We take the time to listen to your concerns and attend to each of your unique needs and desires as if they were our own. When we complete your plan, we perform a detailed quality control process to help ensure your objectives are met. We also provide you with a personalized Owner’s Manual containing all of your important documents, and your Successor Trustee with a Manual containing helpful, plain-English checklists and easy-to-follow procedures.

Lifetime Relationship. All of our estate plans include a free ongoing service package. We take phone calls any time you have questions, perform free estate planning checkups every three years, and keep you abreast of changes in the law and planning strategies with our complimentary newsletters and educational seminars. And, when the time comes, we will be there to help your trustee and loved ones.