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Estate Plans and California Taxes

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, consider consulting with a lawyer and financial advisor. This is a basic overview of the California estate tax landscape.

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 $15,000 in either 2018 or 2019.

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 $11.4 million and up in 2019. 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 $22.8 million after both have died.

For estates that exceed this amount, the top tax rate is 40%.

Other California Taxes

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.

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.

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