The assets that belong to someone at the time of their passing become their estate. Most of the time, the people closest to the person who passed expect to receive all of those assets. Outside parties may actually secure payment from the estate before beneficiaries or heirs receive anything.
Financial obligations owed by the decedent or the estate itself can noticeably diminish the value of an estate. The personal representative of an estate in California has to use estate resources to pay probate costs and debts owed by the decedent. They also have to cover certain types of taxes. People may have income taxes due after their passing. In some cases, large estates may also need to pay estate taxes. Estate taxes are notorious for consuming a significant amount of the property people believe for their loved ones or for charitable causes when they die.
When do personal representatives or beneficiaries waiting for an inheritance have to worry about estate taxes diminishing the value of a California estate?
Only federal estate taxes are a concern
California does not currently have an estate tax. Regardless of how much property someone has in their name when they die, they don’t have to worry about the state of California laying claim to some of their resources. Of course, federal estate taxes apply regardless of where someone resides at the time of their death.
For those who pass in 2024, the estate tax exemption threshold is $13.61 million in total assets. Those who die with more than $13.61 million in personal property, real estate or business holdings leave an estate that may have to pay substantial taxes.
The tax rate depends on the overall value of the estate and how much it exceeds the current estate tax threshold. The rate ranges from 18 to 40%. Typically, there isn’t much that beneficiaries or personal representatives can do to mitigate estate tax obligations. Testators usually have to plan to minimize those taxes as well in advance.
Understanding the rules for estate taxes is beneficial for those with an interest in an estate. Taxes can diminish how much beneficiaries receive and can also become a source of liability for the personal representative under certain circumstances.