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Considering estate taxes is essential to minimize the amount paid

While many individuals in California create an estate plan to make it easier to distribute assets to beneficiaries, paying attention to the tax consequences is essential if you’re a high-net-worth individual. Understanding the differences between inheritance, state and federal tax can arm you with the information needed to help your heirs minimize their tax bill when they receive your assets.

Federal estate taxes may be paid when a beneficiary receives your assets

A federal estate tax is a fee the federal government receives when you die and transfer your assets to specific beneficiaries named in your estate plan. Like the income tax rate, the estate tax rates follow a progressive scale based on estate values, ranging from lower than 20 percent of your estate’s value to higher than 40 percent, depending on current tax laws. The estate’s value is determined by adding all assets together, which can include the following:

  • Real estate
  • Monetary holdings
  • Investments
  • Annuities
  • Life insurance money

High net worth individuals are required to pay federal estate taxes

Making a significant amount of money can be highly rewarding. However, it’s essential to examine the tax consequences of your estate plan when you’re wealthy. In 2021, the IRS required recipients of estates with prior taxable gifts and combined gross assets exceeding $11.7 million to pay federal estate taxes at the rate of 40 percent. Paying this fee can take a significant chunk of your heirs’ final amount. Fortunately, some techniques can be utilized to take advantage of tax laws and lower this tax bill.

Finding ways to minimize estate taxes can be helpful

Keeping the total amount of your estate’s value below a specific threshold can help minimize estate taxes. One technique you can use to do this is by utilizing a trust, such as an intentionally defective grantor trust (IDGT). You can also reduce your estate taxes when you own a life insurance policy.

Understanding the intricacies of estate taxes is essential. This action can help minimize the amount paid, leaving more for your heirs.


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