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Palm Springs Estate Tax Planning Attorney

Developing an estate tax strategy is a crucial part of the estate planning process. You may have heard your friends or family members talk about creating a living trust to avoid paying estate taxes in California. You may also have heard friends discuss changing the way they own their home with their spouse to avoid paying estate taxes.

Working with an experienced estate planning lawyer can help you avoid paying unnecessary estate taxes. Attorney Christopher Heritage of Heritage Legal, PC is here to help. After carefully listening to your goals and understanding your financial situation, he will help you create an effective estate plan. With his in-depth understanding of estate tax laws and legal strategies to decrease tax liability, he will help you protect your assets. Contact Heritage Legal, PC today to schedule your initial consultation.

Is There an Estate Tax in California?

There is no estate tax in California yet. Several states have an established estate tax, but California has not imposed an estate tax on residents. Legislators proposed a California state tax in 2020, but the proposition did not make it onto the ballot. So far, an estate tax proposition hasn’t made it to the floor to receive a vote by the legislature.

The proposed estate tax measure that failed would have imposed an estate tax on estates larger than $2.5 million for individuals. The proposed law would phase out the California estate tax once the value of the estate meets the threshold for federal estate taxes to avoid double taxation. California may eventually impose an estate tax. Consulting with an attorney who stays informed of recent developments is crucial.

What Is an Estate Tax?

An estate tax is a one-time tax that the government levies on an estate after an individual passes away. Estate taxes are sometimes called death taxes because they involve the state taxing your ability to transfer property at your death. The estate tax is based on the estate’s total value at the time of the decedent's death.

Estate taxes are only levied against estates whose total value exceeds a threshold set by law. If the estate tax threshold is $5 million and your estate is only worth $4 million, your estate will not be subject to estate taxes. On the contrary, if the threshold is $5 million in your state is worth $6 million, your estate will be subject to your state’s estate tax. Paying an estate tax can be devastating for a person's estate, and some estate taxes are as high as 40 percent.

The Difference Between an Inheritance Tax and an Estate Tax

There are several significant differences between an estate tax and an inheritance tax. An estate tax is imposed on the estate of the person who died. Estate taxes are based on the total value of the deceased person's entire estate when he or she died. On the other hand, inheritance taxes are other specific taxes placed on the person or people who inherited all or part of the estate. Only six states have inheritance taxes as of right now, and California is not among them.

Even though there isn't a specific inheritance tax in California, people who inherit money from another person's estate may incur other taxes. For example, if they inherit an IRA account and decide to withdraw the money from the account, they will have to pay taxes. They may have to pay income taxes on the property they inherit as well. Suppose you are going to inherit money, or you've already inherited money. In that case, it's wise to discuss your case with an estate planning lawyer who develops a tax planning strategy for you.

The Federal Estate Tax Threshold

The federal estate tax threshold is higher than most state’s estate tax thresholds. In 2021, the threshold for paying estate taxes at the federal level is now $11.7 million for an individual and $23.4 million for married couples. As of 2020, the top estate tax bracket will be taxed at a rate of 40%.

Strategies for Avoiding Estate Tax

One of the best strategies to avoid paying estate taxes is to use portable exemptions. Every American is entitled to an exemption from federal estate taxes throughout their lifetime. As mentioned above, married couples have a $23.4 million exemption. The estate tax exemption is portable, meaning that the remaining part of their exemption can be used by the other spouse to avoid estate taxes when one spouse dies.

Suppose a husband and wife each have individual estates worth $5 million, and the wife passes away. She has a lifetime exemption of $11.7 million. Her husband can use her remaining $6.7 exemption, whether or not the husband inherits his wife's estate. Suppose the husband's estate grows to 25 million dollars over ten years. In that case, when the husband passes away, he can use his exemption and the unused exemption carried over from his wife.

As a result, his estate will only be taxed on $6.6 million. Without using portability to use what’s left of his wife’s exemption, his estate would be taxed on $13.3 million. Exemption portability makes a significant difference, especially when the federal estate tax rate can reach 40 percent. Attorney Christopher Heritage can help you use the portability exemption by incorporating it into your estate plan.

Contact a Palm Springs Estate Planning Lawyer Today

Whether you would like to create your state plan or already have an estate plan but would like to update it, attorney Christopher Heritage is here to help. He will work with you to create an estate plan that enables you to avoid paying unnecessary estate taxes so your beneficiaries can receive as much of your hard-earned assets as possible. Contact his Palm Springs estate planning office today to schedule your initial consultation.


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