Estate taxes can play an important role in the estate planning process. Understanding the impact of estate taxes on your ability to pass along your wealth to your beneficiaries is a key component of estate planning. In this article, we discuss how to minimize estate taxes. 

California Estate Tax Basics

Estate taxes in the state of California are a complex subject. However, if you plan on working with an experienced attorney to create an estate plan, it’s important to have a fundamental understanding of these taxes. Estate taxes, sometimes called “death taxes,” are taxes that are imposed on an individual’s estate after death. Estate taxes are calculated based on the value of a decedent’s assets, including investments, financial assets, and property. An important thing to understand about estate taxes in California is that not all estates are subject to estate taxes. Rather, these taxes only apply when an estate exceeds a certain value threshold. 

In the state of California, estate taxes are governed by federal law. However, state law may also have an effect on the estate taxes one may owe, so it’s important to confer with an experienced estate planning attorney to address possible estate tax issues. 

Reducing Estate Taxes in California

A key component of estate planning in California is minimizing estate taxes. By understanding and utilizing certain legal strategies and tools, it is possible to significantly lower one’s estate tax liability. Below is an overview of ways to reduce estate taxes in California. 

Trusts

Trusts are an important estate planning tax reduction tool. Common trusts include revocable trusts, irrevocable trusts, and charitable trusts. 

Revocable trusts: A revocable trust can be altered or revoked during the grantor’s lifetime. Although this type of trust doesn’t offer direct tax benefits, it plays an instrumental role in managing assets efficiently and avoiding probate.

Irrevocable trusts: Once an irrevocable trust is created, it can’t be easily altered. This type of trust is excellent for estate tax reduction since assets placed in an irrevocable trust are usually excluded from the taxable estate.

Charitable trusts: Charitable trusts are designed to provide benefits to charitable organizations and offer tax savings to the donor. 

Gifting

An additional way to reduce estate taxes is through strategic gifting. This involves transferring assets to beneficiaries during your lifetime, thereby reducing the overall value of your estate. Below are two key aspects of gifting to reduce estate taxes. 

Annual gift tax exclusion: It is allowable to gift a certain amount each year to any number of beneficiaries without incurring gift tax liability.

Lifetime exemption: Beyond yearly exclusions, there is a lifetime exemption limit. Gifts beyond this limit might incur taxes, but they can also reduce the overall taxable estate value.

Early Planning

The most important step you can take to minimize estate taxes is to be proactive. The earlier you begin planning, the more options you have to reduce estate taxes. Some common benefits incurred through early planning include: 

Flexibility: Planning early allows more time to access and utilize various estate planning tools in an effective manner.

Adaptation to law changes: Estate tax laws change all the time, and planning early can help ensure that you adapt to these changes smoothly.  

Contact an Estate Tax Planning Attorney 

If you need assistance with the estate planning process in the state of California, the experienced estate planning attorneys of Biddle Law are here to help. Biddle Law works closely with clients to ensure efficient and legally compliant estate planning. Please contact us today to schedule a consultation with an experienced estate tax planning attorney.