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. If you think you’ll need help with estate planning, a financial advisor could advise you on reaching your goals. This guide will tell you everything you need to know about estate planning and estate tax in California.
California Estate Tax
California does not levy an estate tax on any estates, regardless of size.
What Is the Estate Tax?
Estate tax is 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. The federal gift tax has yearly exemption of $15,000 per recipient per year for 2021, going up to $16,000 in 2022.
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 $11.7 million and up in 2021. This goes up to $12.06 million in 2022. 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 $24.06 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 $12.63 million and you aren’t married. Subtracting the exemption of $12.06 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 $12.06 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 taxable, though Social Security is exempt. California income taxes vary 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.
The California sales tax rate is 7.25% state wide with local rates going as high as 2.50%. This base rate is the highest of any state. Property taxes in California are not as burdensome, as the average rate is just 0.73%.
Estate Planning Tips
- A financial advisor can help you plan your finances or deal with the finances of a loved one who recently died. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- 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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