Part of the estate planning process is planning for taxes. While smaller estates don't have many taxes to speak of, those with large estates may have to worry about taxation in the future.
There are a variety of expenses that could hit your loved ones after you pass if you don't plan for them. For example, there are estate taxes, probate expenses and final income taxes to pay in California.
Who pays estate taxes?
Anyone who has an estate valued over the federal exemption limit will pay estate taxes. In 2019, the estate and gift tax limits were increased significantly to $11.4 million per individual with a gift-tax exemption of $15,000. These amounts double if you're married.
Knowing that the limit is $11.4 million, you may not think you have to worry about estate taxes. However, you have to remember that you may have more than you believe. Your home, stocks and assets all add up. If you're not sure if you'll be under that tax limit, it's a good idea to talk to your attorney and decide if there are any specific plans you need to put into place.
If you are close to the $11.4 million exemption, it's time to start protecting your assets. To do that, you may want to set up trust accounts for your beneficiaries, to start giving annual gifts or to take other steps to protect your estate's assets. Your attorney can talk to you about each option specifically while considering your estate and the factors that affect it.
What should you do if you want to start estate planning for taxes?
If you haven't yet started planning for your estate taxes, don't worry. As long as you reach out to your attorney, they'll be able to help you start the planning process. Whether you have just a small estate plan with a will and trust or you have a complex plan, it's possible to add other protections into the plan that reduce or eliminate any taxes you would otherwise owe.
When you talk to your attorney, make sure you have all of your financial records ready. Being certain of how much you have earned and how much you have in savings or held in assets will make a big difference in what your attorney advises you to do or in how you're advised to set up your estate. Bring these documents, and you'll have what you need to get started.