People who are starting the estate planning process often wonder about the potential estate or inheritance tax implications. For most individuals in California, this is no longer a major concern. California has no estate tax for individuals who died on or after January 1, 2005 and has no inheritance tax for those who died on or after June 8, 1982. The federal estate tax is now only a concern for individuals with significant wealth.
Estate taxes are assessed against the estate of a decedent before it is distributed to heirs and beneficiaries. Inheritance taxes are collected from heirs and beneficiaries and are levied on the amounts received. California no longer collects either type of tax, except with respect to those who died before the above dates.
The federal government still collects an estate tax, but only from estates that are larger than the federal estate tax exemption. The exemption has been rising for over a decade; for individuals who die in 2015, the exemption amount is $5,430,000. Married couples can effectively combine their exemptions; any unused exemption amount of the first spouse to die can be added to the exemption of the surviving spouse, effectively giving the couple a total exemption of $10,860,000.
For a California resident with a substantial estate there are a lot of strategies available to eliminate or reduce the potential federal tax bite. By working with an experienced estate planning lawyer, a wealthy individual can avoid unnecessary taxation and maximize the amount of wealth he or she can pass to beneficiaries.
Source: California State Controller's Office, "California Estate Tax," accessed May 30, 2015