How California’s High Tax Rate Can Diminish Your Estate, and What You Can Do About It

Posted by Debby EhrlichFeb 01, 20220 Comments

You know that old saying: “Nothing in life is certain, except for death and taxes.” It's pretty accurate, unfortunately. That said, there are strategies those of us in the estate planning business have that can minimize the impacts of taxes on posthumous wealth distribution.

At present, the death component remains certain, but with careful estate planning, you can avoid the major pitfalls of unnecessary tax burdens.

How California Taxes Can Diminish Your Estate

You may be surprised to learn that California doesn't impose an estate tax. You can certainly bet that the state makes up for this lost tax opportunity in other ways, though. For example, wealthy Californians pay exorbitant state taxes. While some states, like Oklahoma and Colorado, tax the top wealth bracket at around 6% to 6.5%, according to data presented in a recent Bloomberg article, similarly situated Californians are likely to pay twice that in state taxes. 

In addition to state taxes, you'll also be subject to federal estate taxes, capital gains taxes, and property taxes. When all is said and done, your heirs could be left holding little more than a tax bill (and a grudge) if you don't properly plan for the distribution of your estate.

Strategies to Protect Your Estate from California Taxes

There are a few different ways for you to protect your assets from tax obligations through estate planning. For example, you could distribute annual financial gifts to your children or loved ones while you're living.

Another way, and the most popular way to protect your estate, is to utilize a trust. There are various trust types, and depending on your needs and wishes, one type of trust may work better for you than another. Some examples of trust types include:

  • A revocable living trust
  • An irrevocable trust
  • A testamentary trust
  • A charitable trust

Even within these trust types, each may take a different shape to best fit your needs. Your attorney will help prepare trust documents that are uniquely tailored to the financial situation you have at present and will want your beneficiaries to have in the future.

Speak to an Experienced San Diego Estate Planning Attorney

If you'd like to avoid California tax pitfalls in your estate planning, you should call an experienced California estate planning attorney at DME Associates LLC today at (805) 312-8059. Trusts are extremely versatile, but that doesn't mean they don't require skill and experience in preparing and maintaining.