California is one of the 38 states that does not have an estate tax. However there are other taxes that may apply to your wealth and property after you die. This guide will tell you everything you need to know about estate planning and estate tax in California. If you think you’ll need further help with estate planning, consider using a financial advisor. SmartAsset’s financial advisor matching service can pair you with an advisor in your area who fits your specific needs.
California Estate Tax
California does not levy an estate tax on any estates, regardless of size.
What Is the Estate Tax?
Estate tax is just what it sounds like: a tax levied on the estate of a deceased person prior to it being dispersed to their heirs. You may have heard it referred to as the “death tax.” It does not apply to all estates, only those that reach a certain threshold of value, and that value differs from state to state.
Estate tax should not be confused with inheritance tax. Inheritance tax is money paid by the person who received or inherited the money after it has already been dispersed. Estate tax is taken by the government from the estate of the deceased before their heirs receive it.
California Inheritance Tax and Gift Tax
Like the majority of states, there is no inheritance tax in California. If you are getting money from a relative who lived in another state, though, make sure you check out that state’s laws. They may apply to you and your inheritance. Kentucky, for instance, has an inheritance tax that may apply if you inherit property located in the state.
There is also no gift tax in California, but the federal gift tax applies for gifts of more than $14,000 in 2017 and $15,000 in 2018.
Federal Estate Tax
Even though you won’t owe estate tax to the state of California, there is still the federal estate tax to consider. The federal estate tax goes into effect for estates valued at $11.18 million and up in 2018. This is an increase from the previous federal estate tax threshold of $5.49 million, and went into effect as part of the tax legislation that was signed by President Trump at end of 2017. This tax has full portability for married couples, meaning if the right legal steps are taken a married couple can avoid paying an estate tax on up to $22.46 million after both have died.
For estates that exceed this amount, the top tax rate is 40%. A full chart of federal estate tax rates is below.
Let’s say your estate is worth $11.75 million and you aren’t married. Subtracting the exemption of $11.18 million, that creates a taxable estate of $570,000. Consult the chart to find your bracket. Your base payment on the first $500,000 is $155,800. You also pay 37% on the remaining $70,000, which comes to $25,900. That, plus the base of $155,800, creates a tax burden is $181,700.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.
Overall California Tax Picture
California has among the highest taxes in the nation. Retirement accounts and pension plans are fully taxed, though Social Security is exempt. California income taxes run between 1% and 12.3%. There is an additional 1% surtax on all income over $1 million, meaning 13.3% is effectively the top marginal tax rate in California. That’s also the highest state marginal tax rate in the U.S. You can estimate your take home pay by using our California paycheck calculator.
California sales tax rates range from 7.35% to 10.25%. This base rate is the highest of any state. Property taxes in California are not as burdensome, as the average rate is just 0.75% – the 15th-lowest in the nation.
Estate Planning Tips
- Planning your finances or dealing with the finances of a loved one who recently died can be a lot of work. If you think you need help, it might make sense to employ a financial advisor. SmartAsset’s SmartAdvisor platform can match you with advisors in your area who meet your specific financial needs. Here’s how it works: First you’ll answer a few questions about your financial situation and your preferences. Our system will then match you with up to three financial advisors who will get in contact with you to see if they are a good fit. All the advisors in the SmartAdvisor platform have been fully vetted and have no disclosures on their records. Additionally they are all registered advisors.
- When planning an estate, it’s important to know how much you have in any retirement accounts and how much you will have when you retire. Use this 401(k) calculator to find out what your account might look like.
- Don’t forget to regularly update your estate plan. Big changes, from having a child to buying a house to a big increase in income, could change what you want your estate to look like. Updating your plan will let you address these changes.
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