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Horizon Elder Law & Estate Planning Blog

Friday, February 15, 2019

Pay Attention to Your State Estate Tax Exemption

One of the advantages afforded to taxpayers in the Tax Cuts and Jobs Act (TCJA) is the increase in the federal estate tax exemption. The TCJA increased the federal estate tax exemption. It also indexed it for future inflation. In 2019, the federal estate tax exemption for individuals is $11.4 million ($22.8 million for married couples). However, our California tax savings planning attorneys caution that you need to pay close attention to your state estate tax exemption when preparing estate plans.

States Are Not Required to Increase Their Estate Tax Exemptions


With the increase in the federal estate tax exemption, many estates will not be required to pay federal estate taxes. However, that does not mean that estates will not owe any estate taxes. 
States are not required to follow the federal laws related to estate taxes. Each state has the authority to enact its own estate tax laws. Some states have chosen to eliminate estate taxes on the state level. However, not all states have chosen to do away with estate taxes. Some states also have an inheritance tax, which is paid by the person who receives property from an estate. 


Currently, the District of Columbia and 12 states have an estate tax. Six states also have an inheritance tax and Maryland has both an estate and inheritance tax. 
The estate tax exemption in most states is lower than the federal estate tax exemption. However, some states chose to follow the federal estate tax exemptions in the past. With such a dramatic increase in the federal estate tax exemption, some states have changed their laws since the enactment of the TCJA so that their state estate tax exemption is not tied to the federal estate tax exemption. 


California Estate Tax Laws

Avoiding estate taxes is one of the goals many people have when they are planning their estate. With the increase in the federal estate tax exemption, many individuals will not need to worry about federal estate taxes. For California residents, the state estate tax is not a concern. California does not impose an estate tax. Therefore, California residents only need to be concerned with federal estate taxes.


Some individuals will still need to be concerned about federal estate taxes. If your estate exceeds the $11.4 million exemption, your estate will be taxed at a rate of 40 percent on any amount above the federal exemption. If you are married, you can take advantage of an unlimited deduction for your spouse, but this strategy only defers taxes until your spouse passes away.


The good news is that estate planning tools are available that can help you avoid federal estate taxes. By using a variety of trusts and other asset planning tools, you may be able to avoid estate taxes entirely.


Experienced California Elder Law Attorneys Help You Plan for the Future

If you created your estate plan some time ago, it might be a wise decision to review the estate plan with one of our California elder law attorneys. Contact a California estate tax planning attorney at Horizon Law today to discuss your estate-planning needs. With the recent changes in the tax laws, you may be able to streamline your estate plan by removing complicated trusts that are no longer necessary now that the federal estate tax exemption has doubled.

 


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