Estate planning is more than just writing a will—it’s about protecting your wealth, reducing tax exposure, and ensuring a smooth transfer of assets to the next generation. While California does not currently impose its own estate tax, the federal estate tax remains a significant concern for high-net-worth individuals. Moreover, the potential return of a california estate tax is a topic of increasing political interest.
Failing to plan now could result in millions lost to unnecessary taxes and legal complications later.
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What Is the California Estate Tax?
The term “california estate tax” can be misleading. As of 2025, there is no state-level estate tax in California. However, California residents are still subject to the federal estate tax, which applies to estates exceeding $13.61 million in 2025.
Key facts:
- California repealed its estate tax
- No inheritance tax is imposed in California either
- Federal estate tax starts at 40% for assets above the exemption threshold
This means a California resident with an estate valued at $20 million could face a federal estate tax bill exceeding $2.5 million—even though there is no California estate tax.
Understanding the Federal Estate Tax and Its Impact in California
The federal estate tax exemption is adjusted annually for inflation. As of 2025:
- $13.61 million per individual
- $27.22 million for married couples (with portability)
However, this exemption is set to sunset in 2026, dropping back to approximately $6 million per individual, unless Congress intervenes.
This shift could double the number of taxable estates in California, especially considering the high value of real estate in places like Los Angeles, San Francisco, and Silicon Valley.
Real-World Example:
If you own a home in Palo Alto worth $5 million, a business valued at $3 million, and retirement savings of $6 million, you are well over the coming exemption limit—even if you don’t consider other assets like life insurance or collectibles.
Estate Planning Strategies for High-Net-Worth Californians
Even without a california estate tax, estate planning remains essential. Here are proven strategies to minimize tax liability:
1. Irrevocable Trusts
Assets placed in irrevocable trusts are excluded from your taxable estate. Types include:
- ILIT (Irrevocable Life Insurance Trust)
- Spousal Lifetime Access Trust (SLAT)
- Qualified Personal Residence Trust (QPRT)
2. Gifting Strategies
Use the annual gift exclusion ($18,000 per recipient in 2025) to reduce your estate value over time.
3. Family Limited Partnerships (FLPs)
These allow you to transfer business interests to heirs while retaining control and reducing taxable value through valuation discounts.
4. Charitable Planning
Charitable Remainder Trusts (CRTs) and Donor-Advised Funds (DAFs) offer dual benefits:
- Reduce estate and income taxes
- Support philanthropic causes
Could a California Estate Tax Be Reinstated?
The possibility of a california estate tax returning is real. Several proposals have emerged in recent years to reintroduce a state-level estate tax on multimillion-dollar estates. Motivated by income inequality and budget shortfalls, legislators have considered taxing estates above $3.5 million at rates between 10% and 20%.
If enacted, such a tax could create a layered tax liability—with both state and federal taxes applying to the same estate.
Proactive Steps:
- Consult an estate planning attorney annually
- Stay informed about changes in state and federal tax law
- Review and update your trust documents regularly
Key Considerations for Estate Planning in California
Even without a state estate tax, California has unique factors that influence estate planning, including:
- Community property laws
- High real estate valuations
- Probate process complexity
Without proper planning, your estate could spend months—or even years—in probate, significantly reducing your legacy and delaying distributions to your heirs.
Common Mistakes to Avoid
- Failing to fund your trust properly
- Assuming estate tax law won’t change
- Not considering capital gains and income taxes
- Naming the wrong trustee or executor
Avoiding these mistakes begins with early, intentional planning.
Conclusion
While there is no california estate tax today, that could change. Meanwhile, the federal estate tax looms large for high-value estates. With exemption amounts set to drop and potential new state taxes on the horizon, now is the time to act.
A well-crafted estate plan will:
- Protect your assets
- Minimize tax exposure
- Ensure your legacy
Work with an experienced California estate planning attorney to build a strategy that works for your family—now and in the future.
FAQs
Will California bring back the estate tax?
Possibly. While no legislation has passed yet, several proposals suggest taxing large estates at the state level. High-net-worth individuals should monitor legislative developments and plan accordingly.
Does California have an inheritance tax?
No. California does not impose an inheritance tax, and beneficiaries do not owe tax on inherited property. However, future capital gains taxes may apply if the assets appreciate.
Bradley attended Boston University where he received a Bachelor’s degree in Economics and Political Science as well as a Master’s degree in Business Administration from Columbia University Graduate School of Business (currently attending). He loves to write about everything business related.
