Inheritance Tax in California: Understanding Your Rights and Obligations

When you pass away, your estate is made up of everything you own, minus any debts or expenses such as a mortgage and funeral costs. Inheritance tax is typically paid from the estate when money or possessions are passed on to beneficiaries. But what does this mean for Californians? In this article, we'll explore the basics of inheritance tax in California and how it affects your loved ones.

Understanding Inheritance Tax

Inheritance tax is a tax imposed on the transfer of property or assets from one person to another after they die. The tax rate varies depending on the value of the estate and the relationship between the deceased and the beneficiary. In California, the standard inheritance tax rate is 40% of any amount above the threshold.

The Nil-Rate Band

For the 2023-24 tax year, every Californian has a tax-free inheritance tax allowance of £325,000, known as the nil-rate band. This means that the first £325,000 of your estate is exempt from inheritance tax. However, if you leave behind an estate worth more than this threshold, you'll need to pay tax on the amount above.

Other Ways to Avoid Inheritance Tax

In addition to the nil-rate band, there are other ways to avoid or minimize inheritance tax in California. For example, you can put your life insurance policy under trust, which can reduce the amount of tax payable on death. Alternatively, you can make a deed of variation in your will, which allows you to redirect part or all of your estate to beneficiaries.

Trusts and Inheritance Tax

Trusts are another way to manage your IHT bill and keep control over what happens to your assets after you die. By placing your life insurance policy under trust, you can reduce the amount of tax payable on death. You can also use trusts to make tax-free gifts to beneficiaries.

Gifts and Inheritance Tax

If you make a gift during your lifetime, it may be subject to inheritance tax if you pass away within seven years. However, there are some exceptions to this rule. Gifts between spouses or civil partners, as well as gifts to charities, are generally exempt from inheritance tax.

Inheritance tax in California can be complex and overwhelming, but understanding your rights and obligations can help you make informed decisions about your estate. By using trusts and other strategies, you can minimize the amount of tax payable on death and ensure that your loved ones receive the maximum benefit from your legacy. Whether you're planning for the future or dealing with the consequences of a recent loss, it's essential to have a clear understanding of inheritance tax in California.

Try Our Calculator

To get an idea of how much inheritance tax may be due on your estate, try our free calculator tool. Simply enter the value of your estate and we'll provide you with an estimate of the tax payable.

Make Your Will

If you're planning to make a will or have one reviewed, consider using Which? Wills. Our experienced team can help you create a comprehensive will that meets your needs and ensures your wishes are respected after you die.

Learn More

For more information on inheritance tax in California, including our guide to avoiding inheritance tax and trusts, visit our website today. With our expert advice and resources, you'll be better equipped to plan for the future and protect your loved ones from the burden of inheritance tax.

Inheritance tax in california