When your remaining parent passes away, you know things are bound to get complicated. They have a significant amount of wealth that all has to get passed on to the next generation. It’s going to take time and effort to sort it all out, even though you know they have done some of their estate planning.
One big thing that you’re wondering about is whether you’re going to have to pay estate taxes at the state level. Will there be any liability there?
Living in California
You live in California. If your parent does as well, you do not have to worry about estate taxes or inheritance taxes — other than the ones at the federal level. At the state level, California does not have either one at this time.
This has not always been true. California did use what lawmakers called a pick-up tax all the way until 2005, but then they phased it out. Voter approval would be required to bring it back. The most recent law to impact this is the American Taxpayer Relief Act (ATRA), which has permanently eliminated these taxes unless people opt to vote them back in. Laws do change, so keep an eye on this to see if it happens.
Living outside of California
If your parent lives in another state that does have its own state and inheritance taxes, you cannot shield yourself from them by citing the laws in California. The other state, where the assets are located and where your parent passes away, dictates how the estate gets taxed.
This comes as a surprise to some people, especially if they have lived in California for their entire lives. They simply never considered the differences in the law. You could face a more serious tax liability than you anticipated.
The final piece of the equation is what your parent may have done to lower the tax burden of the estate, even if they live somewhere else. They may realize that they want to preserve as much of the money as possible for you.
For instance, there are situations where you can put money into a trust to lower the value of the estate below the threshold for taxation. The trust does not belong to the individual if it is an irrevocable trust, as they cannot alter it after they create it and they cannot use that money.
As you can see, these cases do get quite complicated. It is very important for you and your parent to understand all of your options in California and your legal obligations.