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Transfer of Property After A Death in California

Did you know that a tax applies when someone transfers property after passing? This is typically called a death tax, where the estate pays taxes before transferring assets to the beneficiary.

What are Death Taxes?

Death taxes are taxes that are enforced by the federal and sometimes by the state government on someone’s estate upon their death. These taxes can be either charged on the beneficiary who receives the property in the deceased’s will or the estate which, pays the tax before transferring the inherited property. Essentially, the government taxes individuals on the right to
transfer property to heirs after death. Therefore, that tax can be based on the total value of the decedent’s estate or the value of a single bequest.

How Death Taxes Calculate?

The government charges estate tax based on the property and assets’ value at the time of the owner’s death. This tax typically applies only to amounts exceeding certain exemptions, not to the entire value of the estate. In 2020, the federal estate tax exemption was $11.58 million, based on the Tax Cut and Jobs Act. This will terminate in 2025 unless Congress decided to renew it. In the event Congress chooses not to renew, it will return back to $5 million. However, back in 2001, the estate tax exemption was $675,000. Thus, the estate’s net value over that amount taxed at 55%.

Why Do Death Taxes Matter?

Depending on what the exemption level is at the time of someone’s passing, the death tax may or may not be owed. For younger individuals who have not yet perhaps established their careers, the thought of owning millions seems impossible. However, with a long life ahead, the idea is not so unimaginable as to achieving financial success that is more than the estate tax exemption.

What You Can Do Now

Taking steps now while the exemption is high is a great idea as to ensure financial security for beneficiaries. For example, placing shares of a successful business or real estate into a trust can shield them from the death tax. Take for instance setting up a domestic trust. This is an idea to consider because one can shield a portion of their assets from death taxes in this way.

For example, Sally decides to open a new business that over time becomes worth $13 million. Sally should set up a revocable trust and place 45% of her business shares into this trust for tax protection. Upon Sally’s death, she will only owe 55% of the business shares and avoid exceeding the exemption level. KAASS LAW can help you navigate death taxes and protect your estate.