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Making sure you understand estate taxes

Estate taxes and tax issues are a big part of planning and creating a will and or a set of trusts and other types of transfers. Taxes are often at the top of someone’s mind when they consider how to pass along assets to the next generation because there is a natural desire to try to preserve as much as possible for children and grandchildren.

Here in California there is no state-level estate tax, so those who have assets under the federal gift limit of $5.34 million may be free and clear and will not have to worry about estate taxes. However, the exemption may not apply to assets held in another state, such as a vacation home or a cabin somewhere in the Northwest where state estate taxes do apply. If one writes their will in California but has moved to their second home or in with their children elsewhere at the time that they pass away, the tax laws of that other state would likely apply.

In some situations, states with budget shortfalls have been reinstating an estate tax, either temporarily or permanent in order to close the gap. Budget issues here in California have made national news over the past few years, so it is always possible that this state will follow suit and impose some sort of tax on the larger estates.

So what is the lesson in all of this? For California families, the lesson is to think carefully about big decisions like moving and adjust an estate plan if necessary to compensate for the change in tax environment.

Source: Forbes, “Where Not To Die In 2014: The Changing Wealth Tax Landscape,” Ashlea Ebeling, Nov. 1, 2013.

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