How to minimize the tax impact on loved ones when you die

| Jul 2, 2019 | estate planning | 0 comments

Estate planning in California requires the person to think about all their property and assets before they die. The person carefully chooses who they wish to inherit a certain property whether a home or prized piece of jewelry. After they die, the heir may have to pay taxes on that inheritance.

According to Legal Consumer, the state of California does not collect an estate tax or inheritance tax. The federal government collects estate taxes on the estate not the heirs for properties starting at “$10 million, which is indexed to inflation and is currently $11,400,000.” The inheritance assets do not qualify as ordinary income so are not subject to income taxes. For the vast majority of people who are not in the top .14% of Americans, the heirs pay nothing upon inheriting the estate.

There is a catch to that. If the heir resides in a state that collects estate tax or inheritance tax, the heir may receive a tax bill from their resident state. Many spouses are exempt from paying those taxes.

The National Law Review says the state of California may have an estate tax before too long. Scott Wiener is a state senator who introduced a bill imposing a new tax on transfers. The law if passed would not go in effect until January 1, 2021. While there would be no double taxation, a 40% tax rate would be imposed on transfers after death. This new law would mainly affect estates between $3.5 million and the $10 million federal limit.