The Ins and Outs of California Estate Tax Laws
When it comes to estate taxes, California residents are in a relatively favorable position. The state does not impose its own estate or inheritance tax, which can come as a relief to many individuals looking to pass on wealth. However, federal estate tax laws still apply, and for high-net-worth individuals, these rules can significantly impact how much of an estate ultimately reaches heirs. Understanding exemption thresholds, utilizing strategic planning tools like trusts, and staying informed about potential legislative changes are all essential for preserving wealth and minimizing tax exposure. At Insight Wealth Strategies, we help our clients navigate these complexities to develop thoughtful, tax-efficient estate plans that align with their goals and values.
What Is Estate Tax?
Basic Definition and Purpose
Estate tax is a federal tax levied on the transfer of an individual’s estate after death. It applies to the total value of assets—including cash, real estate, investments, and other property—before they are distributed to heirs. The purpose of the estate tax is twofold: to generate revenue for the federal government and to promote wealth redistribution by placing a tax burden on large estates.
Estate Tax vs. Inheritance Tax
While the terms are often used interchangeably, estate tax and inheritance tax are not the same:
- Estate tax is paid by the estate before assets are distributed.
- Inheritance tax is paid by the beneficiary receiving the inheritance.
Does California Have an Estate Tax?
California’s Current Tax Policy
As of now, California does not impose an estate or inheritance tax, aligning it with most U.S. states. However, federal estate tax rules still apply, which can have significant implications for wealth transfer planning.
Federal Estate Tax Rules for California Residents
Federal Exemption Thresholds
As of 2025, the federal estate tax exemption is $13.99 million per individual (or $27.98 million for married couples)1. Estates valued below these thresholds owe no federal estate tax.
However, these amounts are scheduled to drop significantly in 2026 unless Congress acts, potentially halving the exemption to around $7 million per individual1.
Federal Estate Tax Rates
For estates that exceed the exemption threshold, the federal government imposes a graduated tax rate ranging from 18% to 40%. Here’s a simplified example:
Estate Value | Exemption | Taxable Amount | Estimated Tax (40%) |
$15 million | $13.99 million | $1.01 million | $404,000 |
This example illustrates how estates just over the threshold can still face sizable tax bills—making proactive planning essential.
Common Exemptions and Planning Strategies
Marital and Charitable Deductions
- The unlimited marital deduction allows spouses to transfer any amount of assets to one another tax-free.
- The charitable deduction allows the value of donations made to qualified charities to be excluded from the taxable estate.
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Both are key tools in minimizing or eliminating federal estate tax liability.
Lifetime Gift Tax Exemption
The lifetime gift tax exemption matches the estate exemption—$13.99 million as of 2025—and covers cumulative lifetime gifts.
In addition, individuals can give $18,000 per person per year (2024) without reducing their lifetime exemption. Over time, strategic gifting can significantly reduce the size of a taxable estate.
Trusts and Other Planning Tools
Advanced estate planning strategies can include:
- Irrevocable Trusts to remove assets from the taxable estate
- GRATs (Grantor Retained Annuity Trusts) for passing appreciating assets efficiently
- ILITs (Irrevocable Life Insurance Trusts) to keep insurance proceeds out of the estate
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These tools allow families to preserve wealth, reduce tax exposure, and provide structured transfers to beneficiaries.
Estate Planning Considerations in California
Property Taxes
California’s Proposition 13 limits property tax increases, but Proposition 19 narrows the ability to transfer a property’s tax base to children or grandchildren unless it becomes their primary residence. This can lead to sharp tax increases for inherited real estate and should be addressed in your estate plan.
Probate Costs and Avoidance
While California lacks an estate tax, probate can be expensive and time-consuming. Probate fees are based on gross estate value and can easily reach tens of thousands of dollars.
To avoid probate, many individuals establish:
- Revocable living trusts
- Transfer-on-death deeds
- Payable-on-death accounts
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These tools allow assets to pass directly to beneficiaries without court involvement, reducing delays and costs.
Community Property Considerations
California’s community property laws mean assets acquired during marriage are owned equally. At death, both halves receive a step-up in cost basis, which can reduce capital gains taxes if the assets are sold.
Estate plans should reflect this ownership structure to ensure proper distribution and tax efficiency.
How Federal and California Policies Differ
Taxation Approach
The federal government taxes estates above the exemption threshold, while California does not currently impose any estate or inheritance tax. This makes California more favorable than neighboring states like:
- Oregon (estate tax starts at $1 million)
- Washington (starts at ~$2.2 million with rates up to 20%)
Long-Term Policy Uncertainty
The current federal exemption is set to drop in 2026, and California has seen repeated efforts to reintroduce a state-level estate tax. Even if you’re not currently affected, future policy changes could expose your estate to taxation.
Strategic Tips for Minimizing Estate Tax Liability
Start Planning Early
The sooner you begin, the more tools you have available. Early planning provides the flexibility to leverage trusts, gifts, and other strategies while keeping your plan up-to-date as your life and laws evolve.
Leverage Gifting Strategies
Annual and lifetime gifting can reduce estate size and provide financial benefits to loved ones during your lifetime. Done consistently, gifting is one of the most effective estate tax reduction techniques.
Work With Estate Planning Professionals
With federal rules in flux and state laws complex, working with qualified professionals is key. A skilled estate planning team can help you:
- Navigate tax law changes
- Maximize deductions
- Structure your plan to align with your legacy goals
Build a Legacy with Informed Estate Planning
Stay Ahead of Legislative Changes
Whether it’s the sunset of federal exemptions or state-level proposals, estate tax policy is subject to change. Staying informed and reviewing your plan regularly keeps you prepared and protected.
Protect Your Wealth and Your Family
Estate planning isn’t just about taxes—it’s about ensuring your wishes are carried out, your family is supported, and your legacy is preserved. With the right plan in place, you can transfer wealth with confidence, clarity, and care.
Insight Wealth Strategies is here to help you design a comprehensive, tax-smart estate plan tailored to your values and goals. Contact us today to start the conversation.
Reviewed by,
Chad Seegers, CRPC®
Chad began his career with Sagemark Consulting in 2005 and then became a Select member of Sagemark’s Private Wealth Services which operated as a national resource for financial planners focusing on Advanced Strategies in the High Net Worth marketplace. Chad then began his partnership with Insight Wealth Strategies in 2013 focused on retirement planning primarily with Oil and Gas employees and executives. His primary areas of expertise are retirement, estate, and investment strategies as he serves as Investment Strategist for the financial planning team.
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Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
