Estate Tax FAQs

The estate tax is a federal tax on the transfer of wealth at death. It applies to the value of your estate on the date you pass away.

Your estate includes what you own or control, subject to specific rules. The law provides a multimillion-dollar exclusion. Only the portion above that threshold is subject to tax, and higher values face higher rates.

You receive one federal exclusion that shelters a large amount of wealth from the estate tax. When your estate is below the exclusion, no federal estate tax is due.

If your estate is above it, only the excess is taxed. Lawmakers can change the exclusion by statute. Therefore, you should revisit your plan when Congress adjusts transfer-tax rules or when your net worth changes.

No. California currently does not have an estate tax or an inheritance tax. However, you still follow federal estate tax rules.

For Petaluma residents, this means the federal exclusion is the key yardstick. Because Sonoma County real estate and business values can appreciate quickly, periodic reviews help you track proximity to that threshold.

The taxable estate generally includes:

• Your residence and other real property
• Bank and brokerage accounts
• Retirement accounts
• Interests in a closely held business or LLC
• Personal property such as vehicles or collectibles
• Life insurance proceeds, if you own the policy

Certain lifetime transfers may also be included under specific rules. A precise inventory helps you understand true exposure.

Federal law links the gift tax and estate tax. Larger lifetime gifts reduce the exclusion available at death. Modest gifts fall under an annual limit and do not use the lifetime exclusion.

When you make larger transfers, you file a gift tax return to report them, even if no gift tax is due. Planned gifting can shift future appreciation out of your estate.

Trusts are central to transfer-tax planning. The trustee, acting under the trust terms, can hold life insurance outside your taxable estate through an irrevocable life insurance trust.

Other trust strategies can move appreciating assets to the next generation while retaining income or control features you specify. Charitably focused trusts can pair tax benefits with long-term giving goals. The right design depends on asset mix, cash-flow needs, and family objectives.

Illiquid assets create unique challenges. A closely held business or a highly appreciated property can push your estate above the exclusion, yet heirs may lack cash to pay tax. Planning tools help address liquidity.

You might pair a buy-sell agreement with insurance owned in a trust, or organize holdings through a partnership or LLC for structured transfers. Your attorney coordinates these elements so successors can operate without disruption.

Most Petaluma households will not owe federal estate tax, but you still benefit from a comprehensive plan. A revocable living trust can streamline administration, and a pour-over will can cover assets outside the trust.

Durable powers of attorney and health care directives protect you during incapacity. Updated beneficiary designations align retirement accounts and life insurance with your overall plan. These steps support your goals even when the estate tax is not a factor.

Review your plan after major life events, significant market moves, or real estate transactions. A review is also prudent when Congress changes transfer-tax rules. Regular updates keep documents current and help you respond to appreciation that could move you closer to the exclusion.