How to Minimize Inheritance Taxes – 5 Financially Savvy Tax Strategies
Inheritance Tax Strategies


You may have seen some of the recent headlines touting California and New York states losing a combined $90 billion in tax revenue over the last two fiscal years (2020 + 2021).

California saw tax collections fall by $18 billion in 2020 and $29 billion in 2021. Second only to New York’s hefty state income taxes, California’s tax revenue is tumbling as residents flee to more “tax-friendly” locales, including Nevada, Texas, and Florida, to name a few.

But, for various reasons, many Californians are unable or unwilling to leave the Golden State. Which, in turn, has CA residents, especially long-term, generational families, looking to protect their income and preserve their wealth from California’s seemingly ever-rising tax burden.

And one area of particular concern for a large swath of Cali natives is inheritance taxes. After spending a lifetime working hard to set aside funds and build asset portfolios to help make their children’s and, in some cases, grandchildren’s lives better, families discover inheritance taxes can swallow a huge chunk of wealth transfer from one generation to the next.

But short of moving to a new state, several potential avenues could work to minimize California state inheritance taxes. Here are five effective strategies to help Californians pass more of their assets on to their heirs.

Annual Gift Tax Exclusion

You can pass along a portion each using the annual gift tax exclusion rather than the entirety of your estate to your heirs after your passing. Under current federal law, an individual can gift a certain amount each year without triggering gift taxes. As of 2023, this amount is $17,000 per person or $34,000 for a married. Distributing your assets over time gradually reduces your taxable estate, ensuring less goes to the taxman (or taxwoman) after your passing.

Establish a Revocable Living Trust

A revocable living trust can help you seamlessly transfer much of your asset base to your heirs upon your passing. Assets held in a living trust are generally exempt from inheritance taxes, meaning most estate assets will transfer to your heirs. California residents can also potentially avoid probate by placing assets in a trust. This measure avoids the often lengthy and usually time-consuming probate court process. that can be costly and time-consuming.

Spousal Property Reassessment Exclusion

Married couples in California can take advantage of the Spousal Property Reassessment Exclusion, a clause that significantly reduces property taxes on real estate transfers between spouses. When a property is transferred through inheritance, its value can be assessed, which can trigger a property tax increase. Avoiding a reassessment helps families minimize property tax increases that could generate unexpected tax bills and drain estate assets.

Stepped-Up Basis

When an heir inherits your property and chooses to sell it, they could potentially owe substantial capital gains taxes if the property’s value significantly increases. A property purchased 20 years ago is worth considerably more today. And when sold, the seller is responsible for paying capital gains taxes on that increase, which is likely to be sizable. In California, heirs are eligible to take advantage of what’s known as a “stepped-up” basis on the assets they inherit. This resets the property’s value to the time of the original owner’s death. Thus, when your heir decides to sell, the resulting capital gains taxes will be significantly lower.

Charitable Donations

Philanthropic donations don’t necessarily preserve assets for your heirs. But giving to charities allows you to deduct the donations from your taxable income, reducing your overall estate and potential inheritance taxes. And this enables you to direct at least a portion of your assets to what you consider a worthwhile charitable enterprise rather than the state government’s coffers.

Have More Questions About Minimizing Your Inheritance Taxes?

Inheritance taxes can take a serious bit out of your estate. Which could lop quite a bit of value off the fanatical assets you were hoping to pass along to your heirs. A reality that’s only growing worse as California state taxes continue their upward trend.

The good news is that with careful planning, you can help minimize the amount of your estate assets surrendered in inheritance taxes. And if you have questions about effective inheritance tax strategies – Get in touch for a FREE tax consultation!


This website uses cookies to ensure you get the best experience on our website.

Get Your FREE Tax Guide

7 Smart Tax Planning Strategies

keep more of your income with a shrewd tax plan

Drop your name + email in the form below