California, among the majority of U.S. states, does not impose an estate tax. However, it’s essential to be aware of other potential taxes that may impact your wealth and property posthumously. This guide aims to provide comprehensive insights into estate planning and estate tax considerations specific to California.
California Estate Tax Overview
California does not enforce an estate tax on any estates, regardless of their size. Estate tax, commonly referred to as the “death tax,” is imposed on the estate of a deceased individual before it is distributed to heirs. Notably, it is only applicable to estates surpassing a predetermined value threshold, which varies across states.
Estate Tax vs. Inheritance Tax
It’s crucial to distinguish estate tax from inheritance tax. While estate tax is levied on the deceased individual’s estate, inheritance tax pertains to money received by heirs after distribution. Fortunately, California does not impose an inheritance tax. However, heirs receiving assets from relatives in other states should verify the applicable laws, as inheritance tax may apply elsewhere.
Federal Estate Tax Considerations
Although California does not enforce estate tax, it’s imperative to consider the federal estate tax. In 2024, the federal estate tax is triggered for estates valued at $13.61 million or higher, up from $12.92 million in 2023. Notably, married couples can benefit from full portability, enabling avoidance of estate tax on estates valued at up to $27.22 million upon the death of both spouses.
For estates exceeding this threshold, the top tax rate is 40%. A detailed breakdown of federal estate tax rates is provided below, outlining tax obligations based on the taxable estate’s value.
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 – $1,000,000 | $248,300 | 39% | $750,000 |
| Over $1,000,000 | $345,800 | 40% | $1,000,000 |
*The taxable estate is the total above the exemption of $13.61 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.
California’s Overall Tax Landscape
California is renowned for its high taxation rates. While the state does not impose an estate tax, residents are subject to significant income taxes, ranging from 1% to 13.53%. Additionally, a 1% surtax applies to income exceeding $1.1 million, resulting in an effective top marginal tax rate of 14.63%—the highest among U.S. states.
Furthermore, California’s sales tax rate stands at 7.25% statewide, with local rates reaching up to 3.25%. Although property taxes are comparatively lower, with an average rate of 0.75%, the state’s overall tax burden remains substantial.
Estate Planning Tips
To navigate California’s complex tax landscape and ensure effective estate planning, consider the following tips:
- Consult a Financial Advisor: A financial advisor can provide invaluable guidance in navigating estate planning complexities and optimizing financial strategies. Utilize resources like SmartAsset’s free tool to connect with vetted financial advisors tailored to your needs.
- Regularly Update Estate Plans: Major life changes, such as marriage, childbirth, or significant income fluctuations, necessitate updates to your estate plan. Regularly review and adjust your plan to align with evolving circumstances and objectives.
In conclusion, comprehensive estate planning, coupled with proactive tax management, is essential for safeguarding assets and maximizing financial outcomes in California’s dynamic tax environment.
