UNDERSTANDING ESTATE TAXES AFTER A PERSON'S DEATH
After people pass away in California, there are still a number of tax tasks and obligations related to their estate, which includes all of the assets owned by a person at the time of death. This includes real estate, bank accounts, securities, overseas properties and even gifts made during a person's lifetime. In addition, there are other types of property that are also considered to be part of a person's estate, even if their ownership structure is more complicated. These include annuities, some types of life insurance proceeds, jointly held property with a right of survivorship and property that the person can control even without ownership.
All of these assets are added together after a person's death. This amount is compared to the federal exemption for estate taxes, taking provisions for gift tax adjustments into account. If the estate is larger than the federal exemption amount, the executor must file a special tax return for estate taxes, IRS form 706. In some cases, no estate tax may be due because of special regulations for transfers between spouses, but the form must still be completed.
The federal estate tax exemption has been expanded significantly under the Tax Cuts and Jobs Act. Prior to the passage of the law, individuals had an exemption of $5,490,000 and married couples twice that amount. In 2018, that amount rose to $11,180,000 per person or $22,360,000 per married couple. In 2019, it rose again to $11,400,000 per person and will continue to be adjusted for inflation.
If taxes are necessary, the executor must file and pay these taxes within nine months after the person passed away. The executor can obtain an additional 6-month extension of the filing period. People managing estates of any size might benefit from consulting with an estate administration attorney about handling taxation, distributions and other key issues.