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Have you planned to reduce the taxes your estate will pay?

On Behalf of | Oct 27, 2020 | Estate Planning |

Planning an estate is often something people have to do multiple times during their lives. The circumstances you had when you were a young professional may be very different from those when you’re getting ready to retire.

As you age, you will likely acquire more possessions and wealth. The simple plan you once had of equally dividing the value of your estate between your spouse and children may no longer be sufficient.

There may be other considerations you have to factor in your plan. For example, the more substantial the assets you’ve acquired and the larger your estate might be when you die, the more important it becomes to consider the tax implications of your estate’s value.

How taxes can impact an estate

Estate taxes are often progressive. That means that the larger the total value of your estate, the more of it your executor or beneficiaries will have to pay out in taxes. Large estates could be subject to a tax rate as high as 40% if the testator doesn’t take steps to reduce tax liability.

Careful planning, including gifts to loved ones while you are still alive and even placing assets in a trust can be a way to minimize the tax burden on your estate. In some cases, careful tax planning can completely eliminate the tax liabilities for your heirs and beneficiaries.

Does California assess a state estate tax?

There are a number of states that assess an estate tax against the value of a deceased person’s assets. A few others assess an inheritance tax that heirs must pay against the value of the assets they receive from an estate. Thankfully, the state of California does not assess either of these taxes.

However, it is possible for people in California to be subject to the federal estate tax. Estates worth over $11,580,000 in 2020 could have to pay an estate tax. The greater the value of the estate beyond that limit, the higher the tax rate the estate incurs, with the highest rate applying to estates with a value of $1,000,000 or more over that limit. In order to avoid reducing your estate’s value by as much as 40%, you should begin planning now to protect your legacy.