Estate Tax Planning: Strategies to Minimize Tax Liabilities for Your Heirs
The main reason that it is so easy to procrastinate estate planning is that, if you do not do it right, you will not be around to face the consequences. Paying taxes hurts considerably less when you are dead. Estate planning lawyers often say that, if you care about anyone, this is reason enough to make an estate plan. It is easy to see why most people do not consider the prospect of their children inheriting a huge sum of money a motivating factor; if you are old enough to be on the AARP’s mailing list, you are also old enough to understand the ways that a sudden increase in wealth can make things worse. Every parent wants to spare their children from life’s most painful experiences, though, and dealing with the stress of settling a disorganized person’s estate in probate court is one of those experiences. The least you can do is get a realistic expectation of how much your heirs will have to pay in taxes when your estate settles, as well as how much money the IRS will take off the top before your estate goes to probate, and if this seems like an unfairly large share for Uncle Sam, you can adjust your estate plan according. This is a lot of work to do by yourself, so a Whittier estate planning lawyer can help you navigate the process.
You Will Not Owe Estate Tax Unless You Are Wealthy
Estate tax is the tax obligation that your estate must pay before the estate settles in probate court. Therefore, the amount that the heirs inherit is the gross value of the estate minus the estate tax and any debts that the estate paid during probate. In practice, most estates do not pay estate tax. California, like most states, does not impose estate taxes at the state level. Therefore, the only way that your estate will have to pay estate taxes is if the value of your estate is high enough for federal estate taxes to apply. The first $13 million of your estate is tax-free, but any property you own beyond that amount is subject to federal estate taxes. The tax rate varies according to the value of the estate’s non-exempt assets. If your estate is worth more than $113 million, your estate will have to pay 40% estate taxes, but that is a problem that most of us can only wish we had.
Your Heirs Will Not Owe Inheritance Taxes Unless You Own Property in Another State
Inheritance tax is not the same thing as estate tax. Instead, inheritance tax is what the heirs pay when they receive their inheritance. California, like most states, does not charge inheritance tax, and there is no federal inheritance tax. Inheritance tax is based on state law and only applies based on the state where the property is located. If the decedent owned property in several states, and one of them charged estate tax, the heirs would be responsible for paying estate tax on the property in that state.
Californians Pay Higher Taxes on Retirement Income but Lower Property Taxes
Taxes assessed after you die are only part of the picture when it comes to the role of taxes in your estate plan. Working people fret about income taxes every year, and this problem does not entirely go away after you die. Retirees who own their own houses must still pay property taxes on their houses. California’s relatively low property taxes make it an attractive destination for retirees; the warm weather does not hurt, either. Of course, California’s taxes on retirement income, such as distributions from retirement accounts, are higher than those of most other states.
Keeping Assets Out of Probate Reduces Some Tax Obligations
Estate taxes and inheritance taxes only apply to assets that belong to your estate. Therefore, a popular estate planning strategy is to designate some of your property as non-probate assets; these assets will pass directly to the beneficiaries after you die, or even before. In either case, inheriting outside of probate is faster and cheaper than waiting for the estate to settle. One way to keep assets out of probate is to establish a revocable or irrevocable trust and then transfer property to it. It is also possible to list a family member as a transfer-on-death beneficiary on your bank account.
Contact the Law Offices of Omar Gastelum About Estate Planning
An estate planning attorney can help you reduce the taxes that your heirs will have to pay. Contact the Law Offices of Omar Gastelum and Associates APLC in Whittier, California to set up a consultation.
Sources
California Estate Tax: Everything You Need to Know | SmartAsset
A Whittier estate planning lawyer can help reduce the estate taxes and inheritance taxes that your heirs will have to pay.
