“Death taxes” refer to taxes on inheritances and estates. The good news is that in California, there is usually no additional tax on inheritances or estates. Unfortunately, if a loved one dies in another state, however, that does have these types of death taxes, those taxes will be applied to the inheritance or estate. There are exemptions for marriage and small inheritances, which would have to be explored. Even if you only have a will, death taxes can apply to what you or your loved ones are leaving behind depending on the laws for that state.
Why is it important to know about death taxes?
Individuals should consult a lawyer when estate planning, even if they only plan on having a will. This is because although the federal death tax on estates does not kick in until the estate is worth over $5,600,000, there are 21 other states that have some sort of death taxes. This can come as a major shock to the family members that inherit when they get a large tax bill in the mail. Even if you, the beneficiary, live in California, taxes can be assessed for the state in which your loved one died. Inherited retirement accounts are also another potential exception for California residents and these accounts are normally subject to taxes whenever the money is withdrawn from the account.
What Should I Do About Death Taxes?
Inheritance taxes and estate taxes are all complex matters even if you think they are straightforward. It is always recommended that a probate attorney be consulted in all matters regarding the potential of inheritance and estate taxes. If you plan on creating a will to leave an inheritance, careful estate planning can also help protect your loved ones from being surprised with tax bills after they receive their inheritance. You should also encourage family members, including parents and grandparents, to consult an attorney when making their own plans for their estates and assets. If you know you are the beneficiary and are eventually inheriting from a loved one that lives out of state, in a state that collects estate or inheritance tax, be sure to know what your tax responsibility will be and consider visiting an attorney with that loved one for advice.
Overall, with simple inheritances and estates in California, having a will that bequeaths money and property will not be subject to death taxes. There are exceptions, however, and an attorney should be consulted for the creation of the will as well as for guidance on potential taxation. If you have a loved one in a state that has death taxes, be prepared for a tax bill upon inheritance from that state.