If you’re wondering what the tax implications of estate planning in California are, you’re at the right place. Estate planning requires understanding of various types of taxes. These include inheritance, gift, and estate taxes, which impact both the giver and receiver of assets.

Each type of tax has its own set of rules and implications, such as how assets are transferred, the value of assets, and so forth. The taxes will be applied if the estate’s value is more than a specific amount. 

For your help, we’ll explain the differences between the types of taxes typically associated with estate planning and whether they’re imposed in California or not. So, let’s dive in to find the details! 

What Is An Inheritance Tax, & Is It Applicable In California? 

In the United States, an inheritance tax is levied by several state governments on the property received by an individual as an inheritance. Currently, this tax is enforced in 13 states, and California is not among them.

That means beneficiaries in California are not required to pay inheritance taxes on the assets they receive. However, if you reside in California but receive assets from a state such as Kentucky, which levies an inheritance tax, you may be required to pay taxes on those assets.

What Is The Federal Estate Tax In California?

While residents of California are not subject to inheritance tax, they are obligated to pay the Federal Estate Tax. This tax is deducted from the assets left behind by a deceased individual during the probate process before the inheritance is distributed to the beneficiaries.

The Estate Tax is calculated based on the overall value of the assets. If the estate’s total value exceeds $13.61 million per individual, the tax will be applied to the estate. Married couples have an exemption threshold of up to $27.22 million. 

Once the estate exceeds the exemption value, taxes are applied to the remaining assets. For instance, if someone leaves behind an estate valued at $20 million, and we subtract the exemption threshold of $13.61 million, the tax will be levied on the remaining $6.39 million.

Estate Tax Rate 

Here’s the estate tax rate as per the value of assets. You can read the table below and calculate the amount of taxes that will be cut from your estate value during the distribution process of the assets. 

Taxable Amount	Rate	Base Taxes Paid	Rate Threshold
$0 to $10,000	18%	$0	$1
$10,001 to $20,000	20%	$1800	$10,000
$20,001 to $40,000	22%	$3,800	$20,000
$40,001 to $60,000	24%	$8,200	$40,000
$60,001 to $80,000	26%	$13,000	$60,000
$80,001 to $100,000	28%	$18,200	$80,000
$100,001 to $150,000	30%	$23,800	$100,000
$150,001 to $250,000	32%	$38,800	$150,000
$250,001 to $500,000	34%	$70,800	$250,000
$500,001 to $750,000	37%	$155,800	$500,000
$750,001 to $1 million	39%	$248,300	$750,000
More than $1 million	40%	$345,800	$1,000,000

What Is Gift Tax In California? 

The Gift Tax is another common type of tax that individuals pay if they want to gift something from the estate that exceeds the exemption value. The difference between gift tax and inheritance tax is that the one who’s gifting has to pay the tax, not the beneficiaries. 

California as a state does not have specific gift tax laws, but there is a federal gift tax. According to this law, individuals can give up to $18,000 per recipient without paying taxes annually. For married couples, the limit doubles as they can jointly give up to $36,000 to a single recipient. 

However, if the gift exceeds this amount $18,000 for an individual and $36,000 for a couple, you are required to file tax returns. This tax return informs the IRS (Internal Revenue Service department) about the gift and calculates any tax owed on the excess amount. 

What Strategies Can Avoid Tax On Estate?

There are several strategies available to avoid estate taxes, each offering its own benefits and level of safety. Among these, creating a Trust stands out as one of the most renowned and secure methods.

By establishing a Trust, you transfer legal ownership of your assets to the Trust’s name. Since the assets are no longer held under your name, they bypass the probate process and remain untaxed.

Besides Trusts, another option is gifting. Individuals can give up to $18,000 per year to someone without any tax obligations. Not to forget, gifts to spouses are entirely tax-free, regardless of the amount transferred. 

You can hire an expert estate planning lawyer to get guidance about the estate distribution process and how you can avoid taxes. They can give you personalized advice while keeping your money safe.

Final Words

What are the tax implications of estate planning in California? The short answer is California doesn’t have taxes on inheritance like other states, but you’ve to pay the federal estate tax if the property value is more than the exemption amount. 

There’s also a Federal gift tax, but it’s only applicable if you’re giving money or assets as a gift valued more than &$18,000 to a recipient, be it a family member (except spouse), friend, or a charitable organization.