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By: Scott Grossman on April 18th, 2022

Do we have to pay “death taxes” in California?

Receiving an inheritance and not knowing how to pay taxes on that money can be dreadful, confusing, and even more demanding when you hear things like “death taxes,” federal estate taxes, or inheritance taxes. So not understanding how to pay or even if you have to pay taxes can leave you feeling unsure of your next steps. And that is okay. 

Here at The Grossman Law Firm, we have been helping our clients answer these questions for over 20 years, assisting countless clients through this challenging probate process. 

In this article, you will learn about: 

  • What are death taxes
  • How to avoid them when possible
  • What you’ll owe
  • And how do you pay death taxes

What are death taxes?

What people in California mean by “death taxes” are the federal estate taxes you have to pay. 

 These are taxes imposed on the value of the estate. Death taxes are based on the value of everything you own on the day you die.

An example, on the day the settlor passes, they own a house valued at 1 million dollars. An Individual retirement account or IRA valued at 2 million dollars, with a list of beneficiaries who will receive money when they pass, a checking, savings, and brokerage account, with a bunch of bonds valued at 2 million. The estate would then be valued at 5 million dollars and would be taxed on the “value of everything they owned when they passed.” 

Meaning death taxes are imposed on everything. If this is over the threshold, then estate taxes are owed.

California has what’s referred to as a “pickup” inheritance tax. That means under federal estate tax law, states are allowed to impose their own death tax. Up to a certain limit, the amount charged by the state is completely deductible from the federal taxes.

The irony is that, yes, CA has a death tax, but it won’t cost you anything.

What is your estate worth?

For instance, if you have 1 million going through probate, 1 million passing by non-probate transfers, and 4 million in an irrevocable living trust. Then your estate is valued at 6 million dollars. 

Death taxes are then imposed on everything in the 6 million dollar estate, not just the one million dollars passing through probate. 

How can I avoid them?

If you are already in the probate process, it is too late. You might have to pay death taxes. 

But, if you aren’t in the probate process just yet, this is a better question for your estate planning attorney. And since they will have a better idea of your specific case. They will present you with better guidance on creating an estate plan that avoids probate and minimizes or avoids estate taxes.

How much will I have to pay?  

For how much you might have to pay, every issue is different. And the answer will vary depending on the case. And how much the estate is worth.

Also, keep in mind that in 2022 an individual subjected to death taxes would have to have an estate valued at 12.06 million. For couples, it is over 24.12 million.  

Now looking back to our example, neither of the case examples above would be subjected to death taxes. This is a result of the estates being valued at under 12.06 million. 

How do I pay for these?

Typically the estate has to pay death taxes. Though if the decedent created a trust, then the trust may be responsible for a portion of the death taxes. 

The responsibility of the executor or administrator is to file the estate tax return and then to use estate assets to pay whatever is owed. 

If you want an overview of the California Probate Litigation Process, check out our Extensive Blog Posts to understand the trust administration process and your rights as a trust beneficiary. Most importantly, our resources will help you know when you need to get help!

If you have questions about your specific situation, please contact us to discuss a free phone consultation. You are welcome to call our office or fill out our GET HELP NOW form.