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How Can High Net-Worth Families Minimize Estate Tax?

High-net-worth families in California are facing a considerable federal estate tax rate when the net value of their assets is over the threshold. It’s a controversial topic that dictates the kind of estate planning tools you will use to minimize the taxes your loved ones have to pay.

What Is A Federal Estate Tax?

The federal estate tax is imposed by the U.S. Government on the transfer of a deceased person’s estate to the beneficiaries. It is based on the estate’s value, and it rises in proportion to its size. The estate pays the tax, not the individual heirs.

The federal estate tax has a significant impact on the estate planning process. It can affect how you choose the tools to use to leave behind your assets to your heirs. So, it is crucial to understand how the federal estate tax works before making any decisions about your estate. It is also essential to consult with a qualified tax attorney to ensure your estate is managed correctly.

How Does The Federal Estate Tax Exemption Work?

Generally, the IRS estate tax exemption threshold for estate values is $12.06 million for the year 2022 and increases to $12.92 million for 2023. This amount can be further increased by taking advantage of spousal and portability provisions.

It is best to consult a qualified tax lawyer to ensure you take full advantage of the federal estate tax exemption and all its benefits. With their help, you can ensure that you take all the necessary steps to protect your assets and maximize your savings.

How Can You Minimize Estate Tax In California?

Since the IRS estate tax exemption threshold is $12.92 million in 2023 for an individual and double that amount for a couple, only the wealthy estates face high taxes dilemma. There are ways you can use different estate planning tools to minimize your estate tax when your net value goes over the threshold. The federal estate tax only applies to the value of your estate that exceeds the threshold.

Make Gifts

You can reduce the size of your estate by making gifts to family members, friends, and charities. You can give up a certain amount each year without paying taxes. When making gifts as part of an estate plan, you must seek an estate planning attorney to give you legal advice before proceeding because there are rules you need to comply with.

This year 2023, there is an annual exclusion of $17,000, so you can gift that much tax-free. You can do this gradually, each year, until you reach the amount you want your beneficiary or heir to inherit. Though California has no gift tax, the Federal Government imposes tax exceeding the yearly exclusion. That’s why you must get the advice of an estate planning attorney to guide you about making gifts to reduce taxes.

Set Up An Irrevocable Trust

For estate value that exceeds the threshold, you can set up an irrevocable trust to avoid taxes upon your death. It allows you to transfer part of your assets to separate them from your estate value. This strategy is helpful for large estates to minimize or avoid tax obligations.

For example, your estate value is $20 million while the threshold is $12.92 million in 2023. You may want to transfer the $8 million to an irrevocable trust to separate that specific amount of your asset from your estate’s net worth. In essence, you avoid paying an estate tax because the remaining taxable assets of $12 million are below the threshold.

The grantor has no claim over the assets transferred to an irrevocable trust. It follows that upon death, the assets in the irrevocable trusts are not included in the grantor’s taxable estate since ownership has changed. When setting up an irrevocable trust, ensure you speak first with an estate planning attorney to guide you on what type of assets you can relinquish your ownership of.

Invest In Tax-Free Bonds

California offers tax-free bonds to its residents which means, in most cases, you don’t have to pay federal and state income taxes since you don’t include their interests in your taxable income. Examples are municipal bonds and private activity bonds. From the sale of these bonds, Government agencies use the fund to finance projects and programs.

If you purchase tax-free bonds to invest, in effect you lend money to the bond sellers or issuers. These bonds work as an IOU because the issuers have to pay you interest for a given rate within a specified period. When the term ends, the issuer will pay you back the full amount of the bond.

On one hand, Government agencies issue municipal bonds which give investors greater assurance for timely repayment. The tax-free status and minimal-risk condition of these bonds allow for a lower rate thus benefiting both the issuer and investor.

On the other hand, the payment of the private activity bonds is not the responsibility of the Government agencies but the private businesses that receive the proceeds. But, sometimes Government agencies also issue private activity bonds on behalf of private businesses to finance low-income housing projects, industrial development, environmental projects, and public facilities.

Use Tax-Advantaged Investments

The individual retirement account or IRA and 401(k) are both examples of tax-advantaged investments. The earnings and gains in your IRA are not taxable unless you make a distribution or withdrawal from your account. Only the amount withdrawn is subject to tax at your current rate.

How to avoid paying taxes on your IRA? You must avoid an early distribution or withdrawal from your account before you reach the age of 59 and a half. Reserve your IRA for its intended purpose. However, if you have an early retirement, you can use the IRS 72(t) rule to receive a penalty-free tax break under specific conditions.

A 401(k) investment is a profit-sharing plan your company offers by contributing a part of your earnings to your account. It is an employer-sponsored plan to allow you to save for your retirement. Your employer matches your contribution on a percentage basis. Since it is a salary deferral, the amount that goes to your 401(k) is excluded from your taxable income.

When you resign from your present job and have a new employer, you can roll over your 401(k) fund to a new account without paying taxes. Then, when you retire, you can transfer the fund in your 401(k) to your IRA. Thus, by doing this, you can minimize or altogether eliminate paying taxes on your retirement investments.

Why Must You Hire An Estate Planning Attorney?

Discover How Your High- Net Worth Family Can Minimize Estate Tax In The State Of California

When minimizing estate tax in California, you must hire an estate planning attorney to handle the appropriate strategy. An experienced tax attorney will help you protect your assets and ensure the maximum wealth is passed on to your heirs as intended.

A tax attorney can also guide you in structuring your estate accordingly to avoid significant legal issues or other tax complications when the time comes. Estate taxes can be daunting and complex. An experienced attorney can ensure all steps taken are necessary for minimizing any potential tax-related issues.

Work With A Highly Qualified Estate Planning Lawyer

Weiner Law understands that estate planning encompasses more than just wills and trusts. It also involves long-term care planning, asset protection strategies, and tax minimization techniques through a collaborative approach to creating an estate plan for your needs.

Tax attorneys at Weiner Law take the time to get acquainted with you, discovering what matters most in your lives. In that way, they can create an individualized plan tailored to achieve all your objectives. Also, they will keep your documents up to date over time to make your estate plan valid over time.


In California, there are multiple ways to minimize estate tax. One way is to transfer or gift money and assets to family members or charities while you are still alive. You can also set up trusts to manage and distribute the assets in your estate. Additionally, you can take full advantage of the federal estate tax exemption.

You can also invest in tax-free bonds or tax-advantaged investments to help reduce your estate tax liability. By taking these steps, you can ensure that you are minimizing your estate tax liability and protecting your assets for future generations.

Reach out to a San Diego estate tax attorney to obtain further details.

About Daniel Weiner

Daniel Weiner is a US and UK licensed attorney, based in San Diego, who provides trust administration and estate planning services to families and individuals across California. Dan guides his clients through the often confusing maze of financial and legal decisions to create plans that ensure the well-being of their families and the accomplishment of cherished family goals.


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