Preparing for taxes after death

When people in California pass away, they will often name an executor in their will. In other cases, the probate court may appoint the representative. However, death does not put an end to tax obligations. Instead, it leads to the need for a new tax assessment of the deceased’s gross estate. The estate includes all the property that a person owned at the time of his or her death. There are several different types of property involved in assessing a total gross estate, including bank accounts, investments and real estate. The estate also includes lifetime gifts, overseas property, joint property with a right of survivorship and some types of community property. It can even include certain types of life insurance proceeds.

The executor of the estate will add together all a person’s assets that count toward the gross estate. This amount, in addition to the adjustments available for taxable gifts made from 1977 onward, is compared to the federal estate tax exemption. If it is higher, the executor must file an IRS form 706 to report on the estate. This is true even if no taxes are necessary as transfers between spouses are generally exempt.

The Tax Cuts and Jobs Act substantially raised the federal estate tax exemption, which reduced the number of people whose estates are taxed after death. While the individual exemption in 2017 was $5,490,000 with twice that amount for married couples, it was increased in 2018 to $11,180,000 per person and $22,360,000 for a married couple. This amount will continue to increase annually in accordance with inflation.

With proper planning, people can minimize the tax liabilities to their estates. An estate planning attorney may help people develop a plan for the future and draft key documents like trusts, wills and powers of attorney.