We Are Here To Provide Legal Guidance During Some Of Life’s Most Difficult Times
We Are Here To Provide Legal Guidance During Some Of Life’s Most Difficult Times

Estate planning and tax considerations

On Behalf of | Jun 10, 2021 | Estate Planning |

When developing a comprehensive estate plan, individuals seek to eliminate familial disputes over valuable property. Unfortunately, surviving loved ones might face financial challenges based on their inheritance. In certain situations, the heir might face tax consequences based on numerous factors.

An estate plan is a set of documents used to distribute assets and specify end-of-life decisions. Generally comprised of a will, trust, and powers of attorney, the estate plan offers peace of mind to both the testator and the beneficiaries. Unfortunately, based on the value of the estate, there might be taxes associated with an inheritance.

Inheritance tax versus estate tax

Even though both might commonly be referred to as “death taxes,” the two are quite different. An estate tax is imposed on the estate as a whole – payable by the estate itself rather than the beneficiaries. This tax can be imposed by either the state tax authority or the federal government. Conversely, the inheritance tax is based on the value of a specific gift and it is payable by the beneficiary.

Many individuals include provisions in the estate plan designed to cover the cost of any inheritance tax that could arise. As with other ancillary costs such as travel expenses or the cost of shipping physical assets, an estate plan can include specific terms designed to minimize the tax burden loved ones might face.

While California does not currently have an inheritance tax, this is a state’s option rather than a federal mandate. The regulations can be revised at any time. It is wise to consult with an experienced estate planning attorney who can provide the answers and guidance you need in your unique situation.