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A common question trust and estate attorneys hear is what about the death tax? They say, I worked hard, and want to make sure my estate is not lost to taxes. The answer is, it depends.
Also known as the estate tax and gift tax, the estate tax applies when you are bequeathing an asset after your death, whereas the gift tax applies to assets given in your lifetime. When planning your estate you must consider both the laws of the state and the laws of the federal government. If you live in California, you are in luck. In the early 2000’s, the California Estate Tax and the California Gift Tax were phased out. However, the federal government does have an estate tax and a gift tax, both of which apply to California residents.
The federal estate tax is currently a hot political issue, meaning the area of law is changing. As of 2025, the federal tax exemption, per person, for estate taxes is $13.99 million, with a tax rate of up to 40% on the portion above the exemption. In 2026 the exemption is scheduled to increase to $15 million. It is important to remember the estate tax includes more than just the cash on hand for the estate. Homes, land, businesses, vehicles, are, jewelry, the entire estate is considered for the federal estate tax. An estate attorney can help you assess the value of your entire estate, and if you meet the federal threshold, discuss ways to pass on your assets with minimal tax implications.
The federal gift tax is much lower. Applying to gifts given during the gift giver’s lifetime, as of 2025, gifts exceeding $19,000 annually, per recipient, trigger federal gift tax liability. Also important to remember, gifts count towards the $13.61 million estate exemption. This cumulative effect can trigger tax liabilities that the individual never anticipates. For example, an individual jointly inherits their parent’s $500,000 home with their sibling. After inheriting the home the individual decides to gift their sibling the individual’s share of the home. The $250,000 value gifted to the sibling counts towards the $13.61 million estate threshold calculated upon the individual’s death. To put it another way, the federal government would act as though your estate had that additional $250,000 of value when determining your estate tax liability.
Just as annual gift can inadvertently trigger tax implications when considering the lifetime value of an estate, regular people can violate the annual gift giving limits without even realizing it. For example, a grandparent putting $40,000 into a California ScholarShare 529 could trigger tax liability. Gifting an adult child $20,000 to help with their wedding or the purchase of a first home could also trigger tax liabilities for being over the $19,000 annual threshold. Consider a college age child’s tuition or medical bills. A parent may not know that who they give those funds to, meaning the child or directly to the institution, changes the parent’s tax liability. Even having a joint account shared between parent and child, or the trendy friend’s vacation shared account, where friends share one account for the purpose of funding a girl’s trip, can get an individual in trouble with the annual gift giving limit.
So how does one avoid the death tax or gifting penalties? Planning. A trust and estates attorney can help devise a strategy to limit your estate tax and gift tax liabilities. One potential method is utilizing a trust. There are many types of trusts, each one with different pros and cons. A Dynasty Trust can be set up to benefit you, your children, and your grandchildren, with equal benefits to your children and grandchildren. A Gifting Trust is another common trust that can be used to gift under the annual $18,000 threshold while protecting the gifts from a recipient who is not ready for such a large gift. These are just a couple of the many trust options available. A professional can help you identify the correct type of trust for your needs and identify how to properly fund the trust.
Another option is taking advantage of the structure of the gift tax. While the gift tax is limited to $19,000 per individual, couples may give $38,000 per recipient, as of 2025. Per recipient is a key term for estate planning. A married couple could gift their married child and the child’s spouse $38,000 each, so $76,000 total to the child and their spouse, before triggering the annual gift tax. Another option is transferring funds between U.S. citizen spouses, which has no limit. Utilizing gift exemptions is another option. Tuition is an exempt gift, when given directly to the institution, but books, supplies, and room and board are not. Thus, paying the school directly would reduce the amount of gifted funds eligible to be counted towards the gift tax ceiling.
Planning for the future can be complex, and it’s crucial to have a knowledgeable estate law attorney to help you navigate the legal process. Based in Escondido, White and Bright provides dedicated counsel and reliable representation to clients for a wide variety of estate related issues, including those involving estate and gift tax. To learn more about our legal services and how we can assist you, call (760) 747-3200, contact us, or select a time and date for a new client consultation.
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