People establishing estate plans in California have unique goals and concerns. For some, supporting charitable causes or giving back to their churches might be a priority. For many others, providing support to loved ones is the main priority.
Regardless of the legacy that an individual hopes to leave, they likely want their chosen beneficiaries, rather than the government, to receive the resources included in their estates. Unfortunately, some people have enough property that the state intercepts a portion of their resources before they pass to their beneficiaries.
Estate taxes can significantly reduce the overall value of an estate and diminish the positive impact that a testator has on others. When do people need to specifically plan to minimize estate tax liability?
Taxes apply to high-value estates
Most adults in California do not need to worry about estate taxes. The state itself does not levy an estate tax. Therefore, only those with estates that are subject to federal estate tax rules need to plan to limit their tax liability.
The federal government maintains a threshold for exempt estates that changes every year. For those who die in 2025, the threshold is relatively high. They need to have property worth $13.99 million or more for federal estate taxes to apply. However, those who are at risk of federal estate taxes need to prepare carefully, as the tax rate increases based on how much the estate’s value exceeds the threshold.
Some estates are only subject to an 18% estate tax, but the maximum tax rate can be as high as 40% in some cases. Estate taxes can have a profound negative impact on the overall value of an estate.
Testators may want to plan to minimize estate tax obligations by taking on co-owners, arranging for assets to transfer directly to beneficiaries when they die or funding a trust. Plans made in advance can diminish the overall value of an estate and protect an individual’s legacy.
Estimating the overall value of an estate can help testators determine whether they need to plan in advance for estate taxes. Those worried about estate taxes and other probate complications may want to sit down and look at ways to maximize what their chosen beneficiaries will ultimately inherit with a thorough estate plan.