Another way to word this: when my kids receive my assets, what taxes will they have to pay? Your kids won’t pay any taxes because of receiving something from you. But let me break it down because there are 3 types of taxes you should be aware of:

1. Estate Tax: For Californians, the estate tax is federal only; there’s no estate tax in California. The estate tax means that when you die, if you have over X amount, your estate will need to pay taxes. The current exemption amount is $13.61 million; you have to have MORE than $13.61 million. And, if you’re married and use portability (another post for another day), your married estate tax exemption is $27.22 million. To repeat: your estate pays this if you owe it.

2. Capital Gains Tax: This is a form of income tax - so it’s state and federal. When you buy something and it increases in value and then you sell it, you pay capital gains taxes on the increase in value. When you die, your capital gain goes away and your kids/beneficiaries get your asset at the value as of the date of your death. E.g. You bought a house for $1 million; it increased in value to $5 million and you die. If your kids choose to sell the house at the time you die, then they pay only capital gains from $5million to the date of the sale. They do NOT pay capital gains from $1 million; that $1-5 million increase got eliminated. That’s also called a step up in basis. So, your kids will pay this if they choose to sell an asset — and it’s increased in value after the date of your death.

3. Property Tax: This is county only. The property tax changes when there’s a change in ownership of a property. When you die, you can’t own anything — so yes, the property tax will probably increase (with a few exceptions) as of the date of your death. However, again, your estate is responsible for paying that.

But what about the diamond ring your kid is going to get from your estate? Well, does that fall into any of the above categories? Nope. By receiving the ring, they don’t get taxed upon receipt.

Please note this is not legal advice, and we encourage you to speak with your attorney and CPA as necessary. Contact me for a complimentary consultation.