California is known for many superlatives: having the largest population of any state in the U.S. for one, with much of that ongoing population growth due to the natural beauty, livability, robust industries, diversity and resources of the states. California is also known for having state and local governments which are not afraid to tax their populations at rates higher than the national average. But one perhaps surprising fact is that, unlike many other states, California does not have an estate tax, although many of its wealthy residents are indeed subject to the federal estate tax.
California Legislators Repealed the State Inheritance Tax in 1981
California previously did have what was called an “inheritance tax” which acted similar to an estate tax, the primary difference being that the tax was levied on the person receiving an inheritance as opposed to an estate tax which is levied against the estate itself before property is distributed to beneficiaries.
California legislators repealed the state inheritance tax in 1981, and there are currently no significant moves to bring it back. That said, the inheritance tax and/or state tax that could apply to your situation will be the one in place when you or a person you inherit from actually passes away, so it is important to stay apprised of changes in the law affecting your interests by periodically consulting with an estate planning attorney.
Note that several states do have inheritance taxes and estate taxes, and thus it is possible that if you have a relative in another state who plans to leave you property, those taxes could affect your inheritance.
Wealthy Californians Are Subject to the Federal Estate Tax
The federal estate tax – despite perennial calls by some political groups for its repeal – is still in place, although who is affected by it changes by the year. Currently, the federal and gift tax lifetime exemptions for individuals is $11.2 million and $22.4 million for wealthy couples. This exemption is nearly double what the exemption was in 2017 thanks to new tax laws passed in late 2017.
While the federal estate tax rules can get quite complex, at their essence, what they mean is that estates worth over $22.4 million for a married couple (and $11.2 million for an individual) at death will be taxed at a rate of up to 40% on the property exceeding that exemption amount. Furthermore, gifts over a lifetime that exceed the yearly gift tax exemption (currently $14,000) will be added to the estate value that might be taxable.
Speak to a Pasadena Estate Planning Attorney About Estate Tax Planning
Estate planning and probate attorney Christopher B. Johnson, located in Pasadena, California, has years of experience in all aspects of estate planning, and works with clients from all walks of life to create wills, trusts, and other estate planning devices that reflect their needs and those of their beneficiaries. To request an immediate consultation, contact him today at (877) 755-9178.