Many adults have wills and other estate plan documents in place to ensure that the right parties inherit their property when they pass away. However, before family members and other beneficiaries receive estate resources, it is typically necessary to first fulfill all of someone’s outstanding obligations.
Creditors can make claims related to debts owed by the deceased. There could also be taxes that the personal representative of the estate will need to pay before distributing assets to someone’s beneficiaries.
There are several kinds of taxes that an estate may need to cover, including income taxes and estate taxes. When do those who are planning, administering or expecting to inherit assets from an estate in California need to worry about estate taxes?
Certain estate taxes may apply to large estates
Estate taxes are an obligation that is based on the total value of someone’s property at the time of their death. California does not have a state estate tax, regardless of the value of an estate.
However, the estates of California residents may still be responsible for federal estate taxes. Every year, the federal government establishes a new threshold for estate taxes. In 2023, estates worth more than $12,920,000 may have to pay estate taxes. That threshold will increase to $13,610,000 in 2024.
The more the total value of the estate exceeds the threshold, the higher the tax rate will be. Particularly large estates may lose as much as 40% of their total value in federal estate taxes. Sound estate planning is typically the best way to reduce or eliminate estate tax obligations for your estate.