When a resident of California dies, their estate is subject to federal taxes. The federal government determines how much this amount is based on the value of the estate. When a person creates their estate plan, they can take measures to ensure that taxes are lower to save money and reduce the burden on their family.
How estate taxes work
Estate taxes usually change every tax year. In 2023, the amount for such tax is close to $13 million and nearly $26 million for married couples. However, even if an estate is exempt on the federal level, it may still be subject to state estate taxes. Those with a value under $1 million can escape the tax requirement.
How gift taxes can offset estate taxes
A person can lower their estate taxes through charitable giving. The federal gift tax makes this possible; however, the individual must ensure to make donations to the charity or charities of their choice during their lifetime. In 2023, the gift tax exclusion amount is $17,000.
Another way to escape estate taxes is to transfer certain assets to people other than family members. Any gifts above the exclusion limit could bypass estate taxes unless the estate has a very high value. For example, if a person makes a gift of $20,000 in 2023, they would be left having to report the difference of $3,000 on a gift tax return. Even the smallest amount might help the individual reduce the amount of money on their estate taxes, making estate administration easier once the person has passed away.
Estate planning is the best way to prepare for the future and secure assets to hand down to your surviving family members. Gifting can help you make the most out of the value of your estate.