State Inheritance Tax

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California no longer has a State Inheritance Tax. The Federal Estate Tax Exemption in 2013 is  $5,250,000. This does not mean that a person dying with an estate that is less than  $5,250,000 will not be subject to a State Inheritance Tax.

California residents may die owning assets in other states. Those other states may or may not have their own inheritance tax. If they do, those states may have exemptions that are lower than $5,250,000.

Some other states that still have an inheritance tax compute their tax based on the deceased person’s assets located both inside and outside of that state and then allocate the tax by multiplying the total by the fraction of the assets that are located in their state. 

For example, assume that State X allowed an exemption of  $3,500,000 and had an inheritance tax of 30% on the excess. A California resident died with $3,000,000 worth of assets located in California and $1,000,000 worth of assets located in State X. In step one of the computation State X’s 30% tax rate is multiplied by ($4,000,000 value of all assets  minus $3,500,000 State X exemption) totaling $150,000. The State X inheritance tax would then be 25% multiplied by $150,000 totaling  $37,500.   

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About randyspiro

I am a super lawyer in California with dual specialization in Estate Planning and Taxation.
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