The next step is to get an idea of what your estate is worth and whether you need to worry about estate taxes.
IN STATE OF CALIFORNIA
Potential Estate Taxes
How much is your estate worth?
Begin by listing all of your assets and their value, including cash, stocks and bonds, notes and mortgages, annuities, retirement benefits, your personal residence, other real estate, partnership interests, life insurance, automobiles, artwork, jewelry, and collectibles. If you’re married, prepare a similar list for your spouse’s assets. And be careful to review how you title the assets, to include them correctly in each spouse’s list. If you own a life insurance policy at the time of your death, the proceeds on that policy usually will be includible in your estate. Remember: That’s proceeds. Your $1 million term insurance policy that isn’t worth much while you’re alive is suddenly worth $1 million on your death. If your estate is large enough, a significant share of those proceeds may go to the government as taxes, not to your chosen beneficiaries.
How the estate tax system works?
Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death — such transfers are deductions for your estate. Then if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. Those assets qualify for the marital deduction and avoid estate taxes until the surviving spouse dies. The net number represents your taxable estate. You can transfer up to your available exemption amount at death free of estate taxes. So, if your taxable estate is equal to or less than the estate tax exemption in the year of your death (reduced by any gift tax exemption you used during your life), no federal estate tax will be due when you die. But if your tax- able estate exceeds this amount, it will be subject to estate tax. The estate and gift tax exemption is subject to change by federal legislation and annual inflation adjustments. In 2023, the estate and gift tax exemption is $12.92 million. The current estate and gift tax exemption is set to expire or sunset in 2025, at which time it could revert to the pre-2018 exemption level of $5 million (plus inflation adjustments). Of course, between now and then, Congress and the President can act to increase or decrease the exemption. Currently, the tax estate and gift tax rates for taxable transfers in excess of the exemption is 40%.