What to Know About the California Estate Tax

If you’re a California resident concerned about estate planning, you’re not alone. Many people ask whether there is a California estate tax, how it compares to federal estate tax rules, and whether inheritance or gift taxes apply. The good news: California does not have an estate tax. However, that doesn’t mean estate planning is straightforward—especially given federal laws, exemption thresholds, and the potential for future changes.

Understanding how federal estate tax, inheritance tax, and gift tax work together—and how they apply in California—is essential for building a smart long-term wealth strategy. Even if your estate doesn’t currently meet the federal threshold, real estate appreciation, business growth, or investment returns could place your estate at risk in the future.

Understanding the Basics: Inheritance, Estate, and Gift Taxes

Before diving deeper into California estate tax concerns, it’s helpful to understand the distinct forms of wealth transfer taxation that may apply during your lifetime or after your death.

Inheritance Tax

An inheritance tax is a levy placed on individuals who receive assets from a deceased person. Only a handful of states—like Pennsylvania and Nebraska—impose this tax. California does not have an inheritance tax, so beneficiaries in the state are not subject to taxes on the assets they inherit at the state level. However, depending on the type of asset and its location, there may be other tax considerations, such as capital gains or income tax on inherited IRAs.

Estate Tax

An estate tax is assessed on the total value of a person’s assets at the time of their death, before distribution to heirs. California estate tax does not exist, but estates in the state may still be subject to the federal estate tax, which is levied on estates that exceed a specific exemption amount.

Gift Tax

The gift tax applies to lifetime transfers of money or property that exceed the annual exclusion limit. Although California does not impose a state gift tax, lifetime gifts are tracked and eventually count against your federal estate tax exemption. For 2025, the annual gift tax exclusion per recipient is $18,000. Anything above that counts toward your lifetime exemption.

Federal Estate Tax and Its Impact on Californians

Even in the absence of a California estate tax, all U.S. citizens and residents must comply with federal estate tax rules. For many Californians, especially those with significant real estate holdings, tech investments, or generational wealth, this federal oversight can have a major impact.

Federal Estate Tax Exemption Threshold

The federal estate tax exemption for 2025 is $13.61 million per individual (or $27.22 million for married couples using portability). If your estate value exceeds that amount, anything above the threshold is taxed at a federal rate of up to 40%.

However, the current high exemption is temporary. Starting in 2026, the exemption is scheduled to drop by roughly half due to the expiration of provisions in the 2017 Tax Cuts and Jobs Act. This dramatic change could impact a much broader group of Californians.

Portability Between Spouses

Portability allows a surviving spouse to use any unused portion of their deceased partner’s federal estate tax exemption. Proper filing of IRS Form 706 within nine months of death (or with extensions) is essential to preserve this benefit. For high-net-worth families in California, this tool is critical to avoiding unnecessary taxation on generational wealth.

Why This Matters for California Residents

Without a California estate tax, residents may feel safe from wealth transfer taxation. But with soaring home values, growing tech portfolios, and rising investment gains, many Californians unknowingly approach the federal estate tax exemption threshold. Advance planning can help avoid costly surprises and reduce tax exposure through strategic asset allocation, trusts, and charitable contributions.

Strategic Estate Planning for High-Net-Worth Californians

Even without a California estate tax, effective estate planning is crucial for protecting your wealth and minimizing tax liabilities. Here are essential tools and strategies:

Annual Gifting

The annual gift tax exclusion allows individuals to give away up to $18,000 per person each year without using up their lifetime exemption. This can be a powerful tool to gradually reduce your taxable estate while providing for children, grandchildren, or others.

Irrevocable Trusts

Using irrevocable trusts—such as Intentionally Defective Grantor Trusts (IDGTs) or Grantor Retained Annuity Trusts (GRATs)—can shift future asset appreciation out of your estate. This reduces the taxable estate value while retaining partial control or benefit from the assets during your lifetime.

Charitable Giving

Donations to qualified charities can reduce your estate’s taxable value while also supporting causes you care about. Strategies include donor-advised funds (DAFs), charitable remainder trusts (CRTs), and direct bequests.

Family Limited Partnerships (FLPs)

An FLP allows for consolidated management of family-owned assets (such as real estate or a family business) while facilitating discounted gifting strategies to future generations.

Business Succession Planning

Business owners in California should develop succession plans early to prevent disputes, ensure operational continuity, and minimize the impact of federal estate taxes on their enterprises.

Will California Implement an Estate Tax in the Future?

Although there is no California estate tax as of now, there have been occasional legislative discussions around introducing one. For example, Assembly Bill 2088 (2020) proposed a state wealth tax, though it did not pass. Given California’s budget challenges and income inequality, the possibility of new state-level wealth or estate taxation remains a concern for high-net-worth residents.

Staying informed and working with legal and financial professionals ensures you’re prepared for any future changes.

Final Thoughts on California Estate Tax Planning

There may be no California estate tax, but that doesn’t eliminate the importance of comprehensive estate planning. The federal estate tax, potential exemption reductions, and growing asset values all create risk for unprepared families.

By taking advantage of gifting strategies, trusts, charitable tools, and professional advice, California residents can preserve more of their wealth—and pass it on to future generations with minimal tax burden. Whether you’re planning for retirement, family support, or philanthropic legacy, the time to plan is now.

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