Important Tax Laws to Know When it Comes to Estate Planning

On Behalf of | Sep 3, 2019 | estate planning


There are many benefits to estate planning. In order to develop the best estate plan for you and your future, it is crucial to have a basic understanding of important tax laws, both state and federal, that may affect your estate plans.

The estate planning attorneys at Galanti and Copenhaver are familiar with California and federal tax laws that affect their clients’ estate plans. Our attorneys take the time to become familiar with your needs and your finances in order to help you create the best estate plan for you and your beneficiaries. Give our office a call today to get started with a consultation with one of our attorneys to learn more about how tax laws may impact your estate planning so you can proceed with developing an estate plan that fits your needs.

Important California State Tax Laws for Estate Planning

One thing you should know about California state tax laws is that there is no estate tax here. Additionally, there is also no inheritance tax in California. These laws apply to estates of California residents, however, so if you are receiving an inheritance from someone residing in another state, you will need to look into the applicable state law on that issue.

In California, retirement plans are fully taxed. Pensions are also taxed. These are things to keep in mind when you are estate planning so that you can take advantage of the tax laws that apply to your finances.

When it comes to gift tax, keep in mind that according to California state law, there is a gift tax exemption of $15,000 per person, per year. A gift tax is a tax on the transfer of property or money to another person when the giver receives nothing in return for the exchange. You are able to gift over $15,000 each year to stay within the exemption, as long as it is no more than $15,000 to each separate individual.

If you gift over $15,000 to one person during the year, you will be required to report the gift to the IRS. The overage is reported, and as long as the grantor (gift-giver) is under their lifetime federal tax exemption ($11.4 million, currently) there will not be a gift tax owed by the grantor. The gift tax exemption is individual, so you and your spouse could each gift $15,000 to one individual ($30,000 total) without owing a gift tax. Though California’s state laws are beneficial for estate planning, you will also need to consider federal tax laws when planning your estate.

Important Federal Tax Laws for Estate Planning-Federal Estate Tax

Federal tax laws for estate planning are a bit different than California’s state laws. For example, as of 2019, there is a federal estate tax on assets over the exemption amount of 11.4 million dollars for an individual. For couples, the federal estate and gift tax exemption can help protect up to 22.8 million dollars. This federal estate and gift tax exemption rose substantially due to a new tax law that went into effect in 2018, and the exemption limit was set at an even higher amount for 2019.

If your estate exceeds the amount allowed in the exemption, the top tax rate is 40%. As this tax becomes substantial at this rate, you will want to discuss your estate planning options with your attorney. With a large estate, you will want to protect your assets to the extent you are legally able to. Your attorney will know how these tax laws may impact your estate, so he or she can help you create an estate plan that is best for you.

Important Federal Tax Laws for Estate Planning-Federal Annual Gift Tax

Another important federal tax law to be aware of when it comes to estate planning is that there is a federally imposed annual gift tax exclusion amount of 15,000 dollars per person, per year. This gift tax exclusion allows you to avoid reporting gift taxes on amounts gifted up to the threshold of 15,000 dollars each year. The exclusion is for the total amount gifted, so it is crucial to pay attention to the amounts of money you are gifting others.

If you were to gift $18,000 to one person in a given year, there is not necessarily a gift tax owed on the gift (unless you are above the life time gift tax exemption), but there would be a necessity to report the $3,000 overage on a gift tax return.

It is imperative to understand how California state law and federal law impact your estate plans. Your estate planning attorney can help you review your finances and give you estate planning advice so that you can create the best estate plan for your needs. Contact our skilled California estate planning attorneys today at Galanti and Copenhaver to get started planning for your future.

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