California Death Tax refers to taxes imposed on the transfer of assets upon an individual’s death. These taxes typically come in two forms: estate taxes and inheritance taxes. As of my knowledge cutoff in September 2021, California does not impose a state-level estate tax or inheritance tax. However, federal estate taxes may still apply to residents of California. Below is a detailed explanation, along with authoritative sources for each section.
1. Understanding Estate and Inheritance Taxes
Estate Tax:
- Definition: A tax on the right to transfer property at your death. It is calculated based on the net value of all assets owned at death.
- Who Pays: The estate itself is responsible for paying the tax before assets are distributed to heirs.
Inheritance Tax:
- Definition: A tax on the beneficiaries who receive assets from the deceased.
- Who Pays: The individuals inheriting the assets are responsible for paying the tax.
Authoritative Source:
- Internal Revenue Service (IRS) – Estate Tax:
- IRS – Gift and Inheritance Taxes:
2. California’s Estate and Inheritance Taxes
No State Estate or Inheritance Tax:
- Current Law: California does not impose a state estate tax or inheritance tax on estates or beneficiaries.
- Consequence: Only federal estate taxes apply to estates of California residents, subject to federal exemption limits.
Authoritative Sources:
- California Franchise Tax Board (FTB):
- California Revenue and Taxation Code:
- No provisions for state estate or inheritance tax are currently enacted.
3. Federal Estate Tax Applicable to California Residents
Federal Estate Tax Overview:
- Exemption Amount: For 2024, the federal estate tax exemption is $13.61 million per individual. Estates valued below this amount are generally not subject to federal estate tax.
- Tax Rate: The federal estate tax rate ranges up to 40% on amounts exceeding the exemption.
- Portability: A surviving spouse can inherit any unused portion of the deceased spouse’s exemption, potentially doubling the exemption for married couples.
Authoritative Sources:
- IRS – Estate Tax Overview:
- IRS Form 706 – United States Estate (and Generation-Skipping Transfer) Tax Return:
- Tax Cuts and Jobs Act (TCJA) of 2017:
- Increased the exemption amount until 2025.
- IRS – Changes Under the TCJA
4. Historical Context of California Estate Tax
Previous “Pick-Up Tax”:
- Definition: Before 2005, California imposed a “pick-up” estate tax equal to the maximum state death tax credit allowed on the federal estate tax return.
- Elimination: The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 phased out the federal credit for state death taxes, effectively eliminating California’s pick-up tax by 2005.
- Current Status: No state estate tax has been imposed since the elimination of the pick-up tax.
Authoritative Sources:
- EGTRRA of 2001:
- California FTB – Historical Information:
5. Property Tax Considerations in California
Proposition 19 and Property Tax Reassessment:
- Effective Date: February 16, 2021.
- Impact on Inherited Property:
- Limits property tax benefits for inherited properties unless used as a primary residence or farm by the inheriting child.
- May result in property tax reassessment at current market value upon transfer.
Not a Death Tax:
- While not an estate or inheritance tax, changes under Proposition 19 can affect the tax liabilities of heirs receiving property.
Authoritative Sources:
- California State Board of Equalization (BOE) – Proposition 19 Implementation:
- California Legislative Information – Proposition 19 Text:
6. Gift Taxes in California
No State Gift Tax:
- Current Law: California does not impose a state gift tax.
- Federal Gift Tax Applies:
- The federal gift tax exclusion amount for 2024 is $18,000 per recipient per year.
- Lifetime gift and estate tax exemption is unified with the estate tax exemption.
Authoritative Sources:
- IRS – Gift Tax:
- IRS Form 709 – United States Gift (and Generation-Skipping Transfer) Tax Return:
7. Key Takeaways
- No California Estate or Inheritance Tax: California does not impose its own estate or inheritance taxes.
- Federal Estate Tax Applies: Estates exceeding the federal exemption amount are subject to federal estate tax.
- Property Tax Reassessment: Changes under Proposition 19 may impact property taxes on inherited property.
- No California Gift Tax: Only federal gift tax rules apply to California residents.
8. Recommendations
- Estate Planning: Consult with an estate planning attorney or tax professional to navigate federal estate tax obligations and property tax implications.
- Stay Informed: Tax laws can change. Keep up to date with federal and state tax law developments.
- Consider Gifting Strategies: Utilize annual gift tax exclusions and other planning techniques to minimize estate tax liability.
9. Additional Resources
- Internal Revenue Service (IRS):
- Estate and Gift Taxes FAQs:
- Instructions for Form 706:
- California Franchise Tax Board (FTB):
- General Tax Information:
- California State Board of Equalization (BOE):
- Property Tax Information:
- American Bar Association (ABA):
- Guide to Estate Planning:
Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.