Some California residents know firsthand the difficulties that come with estate taxes. Forgetting to plan for taxes is a common mistake people across the country make when putting together an estate plan. However, failing to consider estate taxes, gift taxes and other taxes that may be left to pay after your death can leave your loved ones with a mess on their hands.
One area in particular that is important to consider is state tax laws. While it is fairly well-known that estates worth less than $5.25 million are not subjected to federal estate taxes, many people are less aware of their state's exemption level -- and it could be much different.
In addition to understanding how California's estate tax laws should affect your estate plan, it is important to think about inheritance taxes. These state taxes will hit your beneficiaries directly. Knowing how they work will help you create a plan that will protect them as much as possible.
The longer you wait to adjust your estate plan based on taxes, the easier it will become to lose focus. As people age and health issues become more prominent, focusing on tax issues seems less and less important. The fact of the matter is, though, that failing to address how taxes will impact your estate, and more importantly your heirs, will put your loved ones in a tough spot as they try to sort through all of your obligations. On top of that, the inheritance you pass on to your heirs may be substantially deteriorated if it becomes subjected to tax laws. Fortunately, there are several estate planning tools that can help you make sure your heirs and your estate are protected from taxes.
Source: Chicago Tribune, "Plan now to avoid inheriting a tax mess," Amy Feldman, Aug. 8, 2013