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Incorporating taxes into your estate plan

When they begin creating an estate plan, many people come across the phrase “death taxes” online or in conversations with others planning for the future. Generally, “death taxes” refers to estate taxes, gift taxes, and inheritance taxes. And every estate plan should account for both federal and state versions of these taxes.

For those residing in California, you’re in luck: California has no state gift or estate taxes. However, there are still federal taxes to consider – as well as new proposed state taxes.

Federal estate tax

A deceased person’s estate must pay taxes based on the value of the estate. Thanks to federal tax exemptions, many estates are not required to pay this tax. If an individual’s estate is worth less than $11.4 million, their estate will pay no estate or gift taxes.

However, estates that do not qualify for the exemption must pay a 40% tax. So, many people with high-value estates use estate planning tools to divide up or otherwise dispose of their assets to avoid the tax.

Gift taxes

Gifts made from someone’s estate may be subject to the federal gift tax. Someone who gives a gift worth more than $15,000 must pay taxes on that gift. Anything less than that is exempt. Moreover, the $15,000 limit is per person receiving the gift. So, someone can give multiple gifts of up to $15,000 tax-free.

California proposes its own estate tax

California currently does not impose a state estate tax. However, a bill introduced in the state Senate this spring could add gift, estate, and generation-skipping transfer taxes beginning in 2021.

To stay up-to-date on changing tax laws and create an estate plan that can keep up, consult with an experienced estate planning attorney.

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