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Horizon Elder Law & Estate Planning Blog

Thursday, September 30, 2021

Estate Taxes: Who Pays? And How Much?

No one enjoys paying taxes. However, there are very few people who are able to avoid paying some form of taxes during their lifetime. Unfortunately, some individuals pay taxes after their death. Estate taxes can be a burden on your family. Our California elder law attorney can help you develop strategies for avoiding estate taxes.

What Are Estate Taxes?

The government imposes estate taxes as a tax on your right to transfer your property to other parties upon your death. The tax is based on the Gross Estate, which is everything that the person owned or had an interest in at the time of their death.

Depending on the value of your estate, the federal government could take a large portion of your assets to pay estate taxes. The IRS taxes estates based on tax rates of up to 40 percent.

The good news for people living in California is that we do not have a state estate tax. Therefore, inheritances are not taxable at the state level if you are a resident of California at the time of your death. Therefore, you only need to worry about avoiding federal estate taxes if you are a Californian.

Exemptions for Federal Estate Taxes

There is an exemption from estate taxes, which varies based on inflation and changes in tax laws. The current federal estate tax exemption for 2021 is $11.7 million for individuals and $23.4 million for married couples. The high exemption amount means that very few estates are subject to federal estate taxes.

However, the expansion of the estate tax exemption passed by Congress in 2018 is set to expire in 2025. Therefore, unless Congress passes additional laws, the exemption amount will revert to the 2017 rates, adjusted for inflation. The estate tax exemption in 2017 was $5.49 million for an individual.

Congress could vote to extend the higher exemption rates or pass laws to reduce the exemption rate before it is set to expire. Because the future of federal estate taxes is uncertain, it is essential to take steps now to reduce or eliminate estate taxes.

Ways Your Estate Can Avoid Paying Estate Taxes After Your Death

Estate planning incorporates ways to reduce federal estate taxes if you believe your estate’s value may be higher than the exemption amount. Estate planning tips for avoiding federal estate taxes are: You may give up to $15,000 per year to individuals or charities without paying gift taxes. By gifting your assets while you are living, you reduce the value of your estate upon your death.

There are several types of trusts that you can use to protect assets from estate taxes. The trusts own the property, so the assets are not included in your estate.

Contact a California Elder Law Attorney for More Information

Trusts and gifting are just two examples of ways to lower the value of your estate to avoid estate taxes. Our California elder law attorney can discuss other strategies and estate planning tools that can help you protect your legacy for your children and future generations. Contact our office today to set up a consultation.


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