What you have earned and saved throughout your working life will eventually become the legacy that you leave for the people you love. Everything from investment accounts to real estate can help ensure your independence in your golden years and provide a meaningful inheritance to your children, grandchildren or other loved ones. You might even want to donate to a charity.
Years of sacrifice and hard work have meant that you have substantial assets to leave for those you care about after you die. You would likely prefer to maximize the impact of your legacy rather than diminish it. Will you need to worry about estate taxes consuming a large portion of your legacy?
California does not assess a state estate tax
Like most other states, California does not assess an estate tax on the assets in an estate, regardless of how large the estate may be. It also does not directly tax inherited wealth. Still, those with large states might be vulnerable to federal taxation.
In 2021, the individual estate tax exemption cut-off is $11.7 million. If the combined assets in your estate will have a value higher than that, careful planning may be necessary to avoid the federal estate tax. The larger someone’s estate is, the higher the amount of taxes they may have to pay, with federal estate taxes potentially consuming up to 40% of large estates.
What about the beneficiaries?
California neither collects an estate tax from the assets someone leaves behind nor an inheritance tax on bequests to others. Those concerned about federal estate taxes may need to explore tax minimization strategies, ranging from strategic gifting to the funding of a trust.
It is worth noting that while California state taxes will apply to your estate if you live and die in California, the laws of other states could also affect your legacy. If you hold assets or property in another state with an estate tax, like Pennsylvania or Maryland, the assets in those states could be subject to inheritance taxes.