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Will your California estate need to pay taxes?

On Behalf of | Sep 30, 2022 | Tax Law

The property that you have purchased and accumulated throughout your life will become your estate when you die. Your estate, in turn, will significantly impact how people remember you. 

The instructions you provide in your will or trust documents will help your loved ones appropriately distribute your assets after your death. You can provide support for family members and even leave some resources for charitable causes that you support. 

However, your estate may need to fulfill some of your financial obligations before beneficiaries will receive any property. Estate taxes can be a particularly significant obligation, sometimes costing as much as 40% of a person’s estate. Will you need to arrange the pay for or avoid estate taxes when you die? 

Estate taxes apply to very large estates

The typical middle-class family in California likely won’t have to worry about estate taxes. These taxes only apply to larger estates, although there can also be tax implications for certain kinds of property transfers in probate. California does not collect any estate tax, so federal taxes would be the only ones that apply. 

In 2022, an estate would need to be worth more than $12,060,000 for federal estate taxes to apply. For those passing on significant financial resources, real estate and businesses, careful advance planning can significantly reduce how much of the estate is subject to tax. Transfers while you are still alive, trusts and strategic gifts are all ways of diminishing your estate’s value so that estate taxes won’t apply. 

Addressing specific challenges that could affect your legacy will be an important part of creating or updating your estate plan.