Law Offices of Colin Smith

Law Offices of Colin T. Smith California has a Death Tax?

No, surprisingly to many, California does not levy a tax on estates upon death. However, estates in California may be subject to California probate fees and the Federal Estate Tax. Yes, the IRS does tax estates upon death depending on the value of the estate.

Below are some issues an individual in California may encounter when drafting their estate plan or administering the estate plan of a loved one. Below is certainly not an exhaustive list, and it is recommended that you contact your attorney or financial advisor to discuss these issues as they pertain to your specific situation.

Federal Estate Tax

This is a big issue for those with substantial estates. The Federal Estate Tax is currently levied against those estates exceeding $13,990,000 per person in 2025 ($15,000,000 per person in 2026). This means the IRS will exempt the first $15,000,000 of an individual’s estate that passes away in 2026 ($30,000,000 for a married couple that both pass away in 2026). The tax rate on the excess above the $30,000,000 threshold is roughly 40%. Therefore, should a married couple both pass away in 2026 with an estate valued at $50,000,000, the amount owed to the IRS would be roughly $8,000,000 ($20,000,000 x 40%).

California Probate Fees

Often people will come into my office and the first thing I hear is, “I don’t want to pay those taxes we had to pay when my mom died!” After discussion, more often than not, it becomes apparent the individual is referring to California probate fees and not Federal Estate Tax. Generally speaking, a California probate is required if an individual died owning real estate in California in his or her name, alone, or died owning other assets valued at over $208,850 in his or her name, alone. So, what is probate? Probate is the full court proceeding to administer the estate of a deceased person. If possible, probate is to be avoided. Why? There are three main reasons to avoid probate: 1) Time - the average length of a probate proceeding in California exceeds 16 months; 2) Public record - a probate file is completely public record and open for all to see (who inherits? how much? how many creditors were there? what did the decedent’s estate include? etc.); and 3) Cost - the fees to probate an estate are set by California statute. The time and public record are bad enough, but the fees to probate an estate are based upon a percentage of the value of the probate estate and they can be exorbitant! The fees are calculated as follows:

● 4% of the first $100,000 in value of the probate estate; ● 3% of the next $100,000; ● 2% of the next $800,000; and

● 1% over $1,000,000.

This probate fee is paid to both the personal representative of the estate and the attorney of record, and does not include court costs. So, for example, should someone pass away without an estate plan owning a home valued at $900,000, the fee to probate the estate (not including costs) would be $42,000 ($21,000 paid to the personal representative and $21,000 paid the attorney of record).

How do You Avoid Probate in California?

The most common way to avoid probate in California is by establishing and funding a living trust. A living trust is the controlling document setting forth the disposition of the creator’s assets upon his or her death (i.e. a signed document setting forth who is in charge of the estate and who inherits). Funding the living trust is the process of transferring title to assets into the name of the trust. This is done by retitling real estate directly into the name of a living trust (through a deed recorded at the county recorder’s office), retitling bank accounts directly into the name of the living trust, etc. This “funding” process is important to avoid the situation whereby a loved one passes away owning real estate in his or her name or other assets valued over $208,850. As stated above, this will land you in probate court. Very few people have estates valued at over $15,000,000 ($30,000,000 for a married couple), but many people own homes or have assets valued at over $208,850. Therefore, a properly funded living trust, along with the other important estate planning documents (medical directive, power of attorney, will, etc.) remains the standard bearer for proper estate planning in California.

Should you have any questions regarding the above, or would like to establish your estate plan, my office looks forward to hearing from you.

333 University Ave, Sacramento, CA 95825

916-563-7140

www.colintsmithlaw.com