Inheritance taxes (a.k.a. "estate taxes") are imposed by the IRS and are paid by your estate before the beneficiaries receive it. The State of California abolished inheritance taxes by voter initiative in 1982.

Inheritance Taxes are imposed on your estate if it exceeds the "unified credit" in the year that you die. The year of your death and the net value of your estate determine the unified credit. The net value of your estate is calculated by determining the net value of all of the assets that you own at the time of your death, including your retirement plans and life insurance. Current law sets the following amounts:

The amount of tax for estates that exceed the unified credit ranges from 37% to 55% of the amount over the unified credit. The following diagram illustrates how an AB trust operates: