Understand and Manage Estate Taxes the Affordable Way

PLUS: Read a sure-fire way to save 5% on CA Document Preparers’ products and services.

It seems that few taxes are more galling to Americans than so-called “death taxes,” which are 

taxes due on a person’s estate upon death. Why, at this time of grief, must the government bust 

in and confiscate hard-earned wealth from a person who dies? Why shouldn’t a person’s heirs 

have full right to that money or property, which presumably has already been amply taxed? 

It’s a question asked since at least the time of ancient Rome, as the first Roman emperor, 

Augustus, is reported to have levied inheritance taxes. Augustus had plenty of precedent—estate 

taxes are reported to have been levied by Egyptian Pharaohs as early as 700 B.C..

In recent decades in the U.S., this area of tax law has been subject to considerable legislative 

activity at both the state and federal levels. The general trend has been a reduction in the levels 

of death taxes, often by increasing the minimum size of the estate subject to tax, which as of 

2014 at the federal level is $5.34 million per individual. This trend means that more and more 

Americans can avoid the costly attorney fees involved in setting up complex trusts as a means to 

avoid death taxes. Straightforward documents and forms from California Document Preparers 

are increasingly all that is needed to deal with death-tax issues.

The two primary types of death taxes are estate tax, which is a tax on the estate of the decedent 

before the estate is distributed to heirs, and inheritance tax, which is a tax on transfers of the 

estate to heirs. These terms are sometimes used interchangeably or confusingly, however. In 

a related category there are also “gift taxes,” which are imposed on gifts above a certain value 

and are designed to prevent persons from avoiding death taxes by transferring their wealth 

before they die. The annual exclusion level on individual gifts subject to federal taxes has been 

increased in recent years to $14,000, which can be doubled by married couples.

Fortunately for taxpayers, the State of California abolished its inheritance tax in 1982, and since 

2005 the state has not levied an estate tax, which was also known at the state level as a “pick-up 

tax.” Therefore, California residents need only concern themselves with the federal estate tax 

unless they are for some reason subject to death taxes in another state by virtue of, for example, 

property ownership in that other state.

This simplified taxation environment means it is often unnecessary for all but estates in excess 

of $5.34 million for tax year 2014 to take special tax-strategy measures such as setting up trusts. 

Consequently, costly attorney fees involved in trust setup can be avoided by those least likely to 

be able to afford them.

Moreover, a person can now take the unused portion of his or her deceased spouse’s exemption, 

meaning that married couples can effectively combine their exemptions to a maximum of $10.68 

million without the use of trust trickery. Many couples who prepared living trusts before these 

laws changed created complicated “AB trusts” that require onerous administration after the first 

death, including the preparation of an annual tax return. You might want to check if you have 

an AB trust, because you probably don’t need it. California Document Preparers can help you to 

convert your existing trust into a much simpler plan that involves much easier administration for 

the surviving spouse.

The friendly and hard-working staff of California Document Preparers are happy to discuss your 

needs and to help you with the most cost-effective way to prepare for estate succession, so stop 

in today. Also, mention that you read this article and receive 5% off our products and services 

through July 31, 2014.