Estate Planning and Taxes
There are three types of taxes involved in Estate Planning in California.
Estate and gift tax. Federal only. California does not have one. Estate tax is when you die; gift tax is when you’re alive. These take place when you transfer something to someone else. For estate tax, the current exemption amount 12.06 million per person; 24.12 million for a married couple. This means that unless you have MORE than the exemption amount, you do not pay estate taxes when you die. The beneficiaries/recipients do not pay estate tax; it comes from your estate. For gift tax, every year, you’re allowed to give any other person a certain amount without reporting to the IRS. This year (2022), it’s $16,000 per person (or $32,000 for a married couple). If you gift more than that to one person, then you DO report it to the IRS. The IRS then deducts that amount from your estate tax exemption amount.
Capital gains tax. State and federal. Form of income tax, and goes on your income tax return. You buy something, it increases in value and you sell it. You need to pay capital gains taxes on that increase in value. There’s an exclusion of $250,000 per person (or $500,000 for a married couple) that you don’t have to pay capital gains taxes on. Additionally, right now, capital gains taxes get wiped out when someone dies and the tax basis goes up to the “date of death value” of the asset.
Property tax. County only. Property tax gets reassessed when there’s a change in ownership on a property. If moving a house into a living trust, there’s no change in ownership because you still own it. There is a change in ownership at the time of death, when your beneficiaries receive the property. However, there are certain exceptions to this as well. (E.g. Prop 19)
There are all kinds of examples and explanations on the tax stuff and it’s very nuanced. This is just a very brief summary that should not be used as legal advice. If you have questions about your particular situation, please feel free to contact me for complimentary consultation on estate planning.