Not every inheritance involves paying estate taxes, but some estates rise above the federal exclusion amount. California residents that feel familiar with state and federal tax rules might not realize changes could happen. Namely, proposals intended to raise tax revenues by altering the inheritance tax rules exist. Whether they become law is another matter, but anyone engaged in estate planning may wish to learn about the potential changes.
Estates and taxes
The vast majority of people that go through probate or receive assets through transfer on death accounts do not pay federal inheritance tax. Individuals may exempt up to $11.7 million, and married couples receive an exemption up to $23.4 million. Lowering that threshold would decrease the exemption amount.
Taxpayers might not realize that tax rules are subject to Congress and the lawmaking process. If Congress passed legislation changing inheritance tax rules and the President signs things into law, the tax rules change. Any judicial review would likely note that Congress has the authority to pass tax laws.
It may help to make staying on top of tax changes during the estate planning process. If changes appear likely, altering plans to some degree might be necessary.
Unrealized gains and changes
Taxpayers don’t “realize” capital gains until they sell an asset. If a stock rises in value by $1,000, the asset presents an unrealized gain of $1,000. Someone who sells that asset after it drops to $500 in gains, taxes levy against the $500. One proposed change suggests beneficiaries should pay a tax on the unrealized capital gains when the decedent dies and not when they sell the asset. Such a change could make probate more costly.
Anyone concerned about estate taxes might wish to consult with an attorney. The attorney may advise on other matters outside of taxes.