A last will and testament is probably the most well-known estate planning document. People in California use this powerful tool to pass on inheritances, name guardians for minor children and outline their final wishes. However, there is one thing that many people fail to account for in their wills — the estate tax.
Commonly referred to as the death tax, if not properly planned for, it could eat up a good chunk of inheritances intended for surviving loved ones. The estate tax is complicated, making it difficult for the average person to properly plan for it. To find out if any estate tax is owed, all of the assets within a deceased person’s estate must first be valued to find the gross estate value. This is more than just the cash in accounts at the time of death, but also any property, insurance policies or investments.
Mortgages, debts and costs associated with estate administration can all be applied as deductions to the gross estate value. Any property that is transferred to a spouse is also deducted from the gross value, as property transfers to surviving spouses are tax-free. The same applies to various other actions, such as charitable contribution.
Once the estate has been valued and the applicable deductions are made, the final value is compared against the federal taxable level. For 2017, estates worth less than $5.49 million were not subject to the estate tax, while 2018’s value will be $5.6 million. California residents with considerable assets should be aware that wills do not necessarily provide adequate protections for those hoping to avoid forking over significant amounts of money for death taxes. Exploring other estate planning options — including trusts — can help provide a more rounded estate plan.
Source: wbir.com, “Estate planning: What is the ‘death tax,’ and who pays it?“, Christy Bieber, Nov. 17, 2017