Taxes are often among the financial obligations people must settle during estate administration. In fact, tax responsibilities take priority over numerous other financial obligations during the probate process in California.
Tax authorities have a stronger claim to someone’s assets than many private creditors might, as well as the beneficiaries named in someone’s estate planning paperwork. Those aware of those tax obligations and how they may affect an estate will be in a better position to make informed decisions accordingly.
Estate taxes
Technically, California does not assess an estate tax. It also does not tax beneficiaries by assessing an inheritance tax. Still, there could be federal estate taxes due after someone dies. If the estate is worth more than $12,920,000 as of 2023, the federal government will assess estate taxes that could consume as much as 40% of the estate’s total value.
Capital gains taxes
It is common for beneficiaries of an estate to sell what they inherit. If the sale of major assets, like real estate, produces substantial revenue, the beneficiaries of the estate may need to cover capital gains taxes.
Income taxes
In some cases, the decedent may owe income taxes at the time of their death. The personal representative of their estate will typically need to file a final tax return and pay any income taxes that someone still owed when they died. Additionally, the estate itself could be subject to income taxes if estate sales generate more than $600 in revenue.
Properly factoring taxes into administration decisions can protect those carrying out the wishes of someone who recently died from incurring personal financial responsibility for certain types of taxes.