How can I minimize estate taxes in California?
The first thing to know about estate taxes in California is that California does not have an estate tax. That said, let me explain the types of taxes that are handled with estate planning:
Estate tax: The federal government has an estate tax that is applicable to those individuals who have more than $13,610,000 when they die, or $27,220,000 for a married couple — as of January 1, 2024. California does not have an estate tax. Right now, if you have less than $13.6 million or $27.2 million, then you’re not paying an estate tax.
Capital gains taxes: This is the tax that you pay when something you’ve invested in has increased in value and you sell it. It’s a state and federal income tax. When you get the benefit of that gain in value, you pay taxes on it. So, if you buy a house for $1 million and sell it for $5 million, then you have to pay capital gains taxes on the increased value of $4 million. (There’s a deduction if this is your primary residence of $250,000). When someone dies, capital gains get eliminated and the value of the item jumps up to the date of death value. So that house would be worth $5 million and no one would pay any capital gains taxes if the beneficiary (the person who receives the house) sold it within six months of the date of death. If they hold on to it, then the value just resets at $5 million and the beneficiary would be paying capital gains taxes for $5 million to the value it is sold.
Property taxes: This is county only and is reassessed when there’s a change in ownership. There’s no change in ownership when moving property into a trust or adding a spouse to a deed. There’s a change in ownership, however, when someone dies and the property changes hands. (If one spouse dies and the surviving spouse takes the property, then there’s no change in ownership and no reassessment of property tax.
Those are the big 3 in California to think about for taxes. But one of the other “costs” is probate. Remember that probate costs a percentage of gross assets and is applicable if you die with NO will or ONLY a will. You typically need a trust to avoid those probate fees.
Contact me for a complimentary consultation and we can talk through all of the taxes and costs.