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Reducing Estate Taxes

What size estate is
subject to estate taxes?

The State of California and the Federal Government allow an individual to pass unlimited assets to a legal spouse or qualifying charity without any estate tax.

The State and Federal governments also allow you to pass an estate of $13,610,000 as of 2024 to others without any death taxes. For estate tax purposes, your assets minus your liabilities equal your taxable estate. This is different from your gross estate (which is used to figure out probate fees).

Non-charitable and non-marital gifts which total over $13,610,000 are subject to estate tax as of 2024. For estates over $13,610,000, the Federal estate tax rate is 40%.

Large estates may also be subject to additional death taxes such as generation skipping taxes.

Reducing Estate Taxes

How can I avoid estate taxes if my estate
exceeds the federal applicable exclusion amount?

You should discuss estate taxes with an estate planning attorney.

There are many techniques for reducing or eliminating estate taxes. One method is to spend your estate down. Do something you have always wanted to: buy a new car, take a cruise, redecorate your home. Another method for a husband and wife includes creating a special trust called an A/B trust, or “exemption trust”.

This type of trust enables a married couple to pass up to $27,220,000 for deaths in 2024 to their beneficiaries without incurring any estate taxes.

This type of trust can save your beneficiaries hundreds of thousands of dollars in estate taxes. Yet, it still allows the surviving spouse to benefit from the entire estate.

Estate Tax Applicable Exclusion Amount

YearSingle/Married Reg.Married A/BExcess Tax Rate
2023$12,920,000$25,840,00040%
2024$13,610,000$27,220,00040%
2026$6,000,000*
*estimate
Law will sunset unless Congress acts		$12,000,000*40%

How much can I give away without
subjecting my beneficiaries to gift taxes?

You can reduce your estate by making lifetime gifts of up to $18,000 per calendar year per beneficiary to your own children or other beneficiaries. For example, if you have two beneficiaries, you could give each one gifts of up to $18,000 per year for total gifts of $36,000.

A married couple could give $36,000 to each beneficiary for a total of $72,000 per calendar year. In 2021 and beyond, you can use up to $13,610,000 of your Applicable Exclusion Amount for lifetime gifts, but this would reduce the Exclusion available on death.

Unfortunately, some of your beneficiaries may spend money unwisely. In this case, you may want to make suggestions. You could suggest they fund their IRA account, pay for a life insurance policy or pay for their revocable living trust.

For beneficiaries under the age of 21, you can give the gift to a custodian under the Uniform Transfers Act. The custodian holds the money for the beneficiaries until they reach the age of 21.

Still another way to make gifts to your beneficiaries without paying gift taxes is to pay for their education or medical expenses. By making payments directly to the hospital, doctor, or school, you can spend unlimited funds on your beneficiaries. This does not affect the $18,000 limitation.

Another common method is to make charitable contributions. You may give an unlimited amount to any qualified non-profit organization. Popular choices for donations include your church or temple, medical charities, educational institutions, or other qualified non-profit organizations.

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