Benjamin Franklin said, “Nothing is certain except death and taxes.” And even though a healthy lifestyle can help you live longer, humans still have not found a way to become immortal.
Unfortunately, taxes are also unavoidable, but there are ways to minimize the tax bill for you and your heirs.
Does California have an estate tax?
California doesn’t have an estate or inheritance tax. At the federal level, a tax is levied on estates valued at $13.61 million and up. This can have a significant impact on Californians, as the state has the most millionaires and billionaires in the country. So, how can residents of the Golden State reduce their tax liability?
1. Trusts
Trusts are a great estate planning tool as they offer you flexibility and control over the distribution of your assets while also providing tax benefits. While there are several ways to structure a trust, they typically fall into three categories:
- Revocable living trusts don’t necessarily offer direct tax savings. But they do help avoid probate, saving time and money and keeping your estate’s details private.
- Irrevocable trusts can offer substantial tax savings as they remove assets from your taxable estate. However, once they are transferred, you relinquish any control.
- Charitable remainder trusts (CRTs) allow you to donate your assets to a charity. You still receive an income during your lifetime and also enjoy a charitable tax deduction. When the trust ends, the remaining assets go to the charity.
2. Gifting
Gifting during your lifetime is an easy and efficient way to reduce the size of your estate, potentially lowering your tax liability. The IRS allows you to give $18,000 annually per recipient without incurring gift taxes. This has a twofold advantage: In addition to avoiding the gift tax, by gifting assets, you can lower the taxable portion of your estate over time.
Tax laws can be complex and are constantly changing. Therefore, reviewing your options with someone who can provide guidance tailored to your situation is crucial to ensure you maximize tax savings and achieve your estate planning goals.
