Will My Child Need to Pay Estate Taxes After I Die?

As you create your estate plan, the financial well-being of your child undoubtedly weighs heavily on your mind. In particular, you may be wondering if your assets will be subject to any taxes that could potentially diminish your child’s inheritance.

For the answer to this question and more, keep reading:

Does California Have an Estate Tax?

California does not have an estate tax. As such, if both you and your child claim residency in the Golden State, neither they nor your estate should have any state-level tax liability after you pass away.

As of 2023, the only states that have an estate or inheritance tax are:

  • Connecticut
  • Hawaii
  • Illinois
  • Iowa
  • Kentucky
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • Nebraska
  • New Jersey
  • New York
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Vermont
  • Washington

If you or your child lives in any of these regions, the state may assess taxes on your estate. Talk to a family lawyer in the state in question to learn more about the potential tax liability.

Is There a Federal Estate Tax?

Unlike the state of California, the federal government does assess estate taxes. However, it only does so on estates that are worth more than its filing threshold during the year of death.

For 2023, the filing threshold is $12.92 million for single people and $25.84 million for couples.

If the value of your estate is lower than this figure, the federal government will not tax it after you die.

If, on the other hand, your estate is worth more than this threshold, it will be subject to estate tax when you pass away. The tax will be assessed on every dollar that exceeds the threshold.

For 2023, the federal estate tax rates are:

  • $1 – $10,000: 18%
  • $10,001 – $20,000: 20%
  • $20,001 – $40,000: 22%
  • $40,001 – $60,000: 24%
  • $60,001 – $80,000: 26%
  • $80,001 – $100,000: 28%
  • $100,001 – $150,000: 30%
  • $150,001 – $250,000: 32%
  • $250,001 – $500,000: 34%
  • $500,001 – $750,000: 37%
  • $750,001 – $1 million: 39%
  • $1 million+: 40%

These estate tax rates and the filing threshold are subject to change on an annual basis.

How to Reduce Your Child’s Estate Tax Burden

If you believe your estate will be subject to taxes, and you would like to reduce or even eliminate that burden, you may wish to consider the following options:

  • Gifting Assets: As of 2023, you can give up to $17,000 a year to your family members without reporting it to the IRS.
  • Irrevocable Life Insurance Trust: An ILIT can remove the proceeds of a life insurance policy from your taxable estate.
  • Qualified Personal Residence Trust: A QPRT lets you transfer your primary residence or vacation home to trust while retaining the right to live in it for a set period. Afterward, the property passes to your heir at a reduced value for estate tax purposes.
  • Family Limited Partnership: Transferring your assets into an FLP gives you the ability to retain control while gifting or selling ownership interests to your child.

The best solution for you will primarily depend on the value of your estate and the nature of your assets.

Your Knowledgeable San Diego Estate Planning Lawyer

The Semanchik Law Group has been helping California families like yours prepare for the future for years. So, if you need estate planning advice in San Diego, please don’t hesitate to give us a call at (619) 535-1811 or send us a message online. We will be happy to provide you with all the information you need to make the right choices for your family.