California Estate Tax 2025: Strategies for High-Net-Worth Families to Safeguard Their Legacy

Here’s the reality: California’s estate tax comes roaring back in policy debates, and high-net-worth families ignore it at their peril. With rising asset values and D.C. uncertainty, not having a plan exposes millions—if not tens of millions—in unnecessary taxation. Yet even as headlines panic the wealthy, effective (and legal) tools remain within reach if you take decisive, well-advised action in 2025.

Quick Answer:
There is currently no standalone California estate tax for 2025, but high-value estates face significant federal tax risk. Pending policy change and California’s historical flirtation with state-level estate tax mean that robust planning is essential for any estate above $12M. Strategic use of irrevocable trusts, lifetime gifting, and entity structuring can often preserve $5M–$25M (or more) for your heirs—results never achieved by “wait-and-see” approaches.
This information is current as of 8/16/2025. Tax laws change frequently. Always verify updates with the IRS or California FTB.

Why Most High-Net-Worth Californians Underestimate Their Estate Tax Liability

Let’s bust a myth first: “No estate tax in California means I’m safe.” The truth is more complicated. While California repealed its state estate tax, the federal estate tax hits estates above $13.61 million per individual in 2025 (or $27.22 million per couple). That threshold, however, is set to drop drastically in 2026 if the current federal law sunsets, putting even more families in the crosshairs—and Sacramento has debated reenacting a state-level tax as recently as last year.

Suppose your total estate is $30 million. With improper planning, and if Congress lets the exemption drop to roughly $7 million per person, your estate could face an immediate federal tax bill of $4.6 million—or more if California passes a new tax (using the 40% rate above the threshold). For many, the risk is even higher with rapid appreciation in real estate and business holdings.

That’s not theoretical. In 2024, IRS data shows the average estate return above $20 million paid in excess of $6 million in tax (see IRS Estate Tax Stats).

Federal vs. Potential California Estate Tax: The Critical Divide

Why do so many California-based millionaires and family offices relax on estate tax risk? The absence of a state-level estate tax today fosters dangerous inaction. But if (and when) California follows states like Oregon, New York, or Washington in reinstating its own tax, there’s almost no warning—those who planned ahead win, while latecomers write seven-figure checks.

If a $10 million estate faces a revived CA estate tax at a hypothetical 16% (a rate used by neighboring states), $1.6 million vanishes instantly—on top of federal tax exposure! Even those focused solely on federal law risk sudden exposure. Advanced moves—like gifting, trusts, entity reorganization—protect significantly more than the average “trust-and-see” setup.
Explore our premium estate tax planning services tailored for California HNW families.

Five Estate Tax Strategies Every High-Net-Worth Californian Needs in 2025

1. Lifetime Gifting (Annual and Lifetime Exclusion)

• For 2025, the annual exclusion remains $18,000 per recipient. Married couples can gift $36,000 to each child or grandchild tax-free each year (see IRS Gift Tax resource).
• Strategic annual gifts from a $30M estate across five children and four grandchildren = $324,000 moved out of the estate per year, preserving over $125,000 in potential future estate tax per year.
• Utilize the lifetime exclusion while it’s high; inaction after 2025 could see your available exclusion slashed in half—costing millions in extra tax.

2. Irrevocable Life Insurance Trusts (ILITs)

• Life insurance proceeds are typically included in your taxable estate unless held in an ILIT. Shifting a $10M policy out of your estate avoids $4M+ in unnecessary tax—and provides immediate liquidity for heirs.
• This is especially critical for real estate investors with illiquid assets who want to avoid forced sales just to pay IRS bills.

3. Advanced Entity Structuring

• LLCs and Limited Partnerships artificially lower the taxable value of real estate and closely held businesses, providing discounts for lack of marketability and minority interests—commonly saving 15–35% in valuation for estate tax calculation.
• A $15M rental portfolio, restructured into an entity, could yield a $4M+ valuation discount, cutting estate tax exposure by $1.6M at federal rates.
• For learn more, see our CA Guide to Estate & Legacy Tax Planning.

4. Grantor Retained Annuity Trusts (GRATs) and Dynasty Trusts

• GRATs and Dynasty Trusts permit asset transfer at today’s value while allowing future appreciation to accrue outside your estate—often shifting millions tax-free to heirs. For instance, a $7M stock portfolio appreciating at 6% annually, when placed in a GRAT, may enable $2.4M in estate tax-free transfer in a decade.
• With careful setup, these trusts survive generational extension even as IRS and CA adjust limits.

5. Charitable Gifting and Foundations

• Direct gifts to IRS-recognized 501(c)(3) organizations or family-run foundations both reduce taxable estate and leave a legacy of philanthropic excellence.
• A $1M charitable gift can lower estate tax by $400,000 instantly—plus, ongoing foundation grants can fulfill family values for generations.

Red Flag Alert: The “Wait-and-See” Trap

The biggest mistake high-net-worth individuals in California make is deferring estate planning until year-end legislative clarity. If you act after a law changes, nearly all advanced strategies (gifting, trusts, entity discounts) are off the table for those assets. The IRS has repeatedly closed “last-minute” loopholes, and California’s track record is to enact tax laws retroactively. The right time to plan is now, while exclusions and strategies remain available.

Pro Tip: Combine an ILIT with a dynasty trust to insulate both insurance proceeds and multi-generational assets from both federal and potential state estate taxes.

What If California Reinstates Its Estate Tax in 2025?

The path to reinstatement requires legislative action and a statewide vote, but expect extremely short grace periods if enacted. Estates above $5M would likely face rates ranging from 10% to 16%, with little or no grandfathering for new planning. For high-net-worth families, that means an extra $1 million per $10 million in estate value, instantly on the line.

To guard against this, utilize flexibility—move assets into protected vehicles now, before speculation becomes law. And recognize that asset values in California (especially real estate) routinely create “stealth” estate tax risk. Your $8M property in Palo Alto with $4M gain is subject to the same rule as a $30M Newport Coast mansion.

KDA Case Study: Multigenerational Wealth Transfer for a California Family

Persona: High-Net-Worth Family (parents, 2 adult children, 4 grandchildren)
Challenge: $42 million in mixed real estate and business interests, with $8M in underlying (often illiquid) California property. Concerned about exclusion rollback and pending state-level estate tax threat.

What KDA Did: Implemented annual gifting program ($324,000/year), established an ILIT to handle multiple life policies ($9M transfer from estate), transferred $18M of rental and business assets into a multilayer entity for valuation discount. Set up dynasty trust for next-generation transfer and coordinated parallel tax planning for potential state-level tax reintroduction.

Result: Cut projected 2026 federal estate tax by $5.2M, eliminated $1.6M future state tax risk, increased planned charitable legacy. KDA charged $14,500 for planning/execution versus first-year projected tax savings of $6.8M—an ROI exceeding 460x in savings to cost. Family now positioned to adjust to future law changes with pre-structured trusts and entities already in place.

Should I Wait, or Do I Need to Act Now?

If you own business interests, significant real estate, or liquid investments in California, procrastinating could cost millions more than “over-preparing.” The most powerful tools—lifetime gifting, trusts, ILITs, discounted entities—require action before law changes take effect. Every year of delayed planning risks permanent exclusion loss.

Work with KDA’s estate planning specialists to create a customized strategy that addresses current federal rules and is built to outsmart future state-level threats.

The Bottom Line: Estate Tax Planning Is a Race, Not a Sprint

It’s easy to believe “no news” means “no risk”—but for any California family with seven- or eight-figure assets, the real danger lies in inaction. Tax rules move fast; loopholes close faster. The right estate planning playbook, implemented proactively, can legally save your family $5M–$20M+ and preserve your legacy for generations.

Want more on estate and legacy strategy for California families? See our California Guide to Estate & Legacy Tax Planning.

For other high-net-worth tax strategies, see: KDA Premium Advisory Services, Tax Planning, or Entity Structuring for Wealth Preservation.

Frequently Asked Questions: California Estate Tax 2025

What’s the estate tax exemption for 2025?

For federal estate tax, the exemption is $13.61 million per person for 2025. California currently provides no additional exemption because it does not levy a state-level estate tax in 2025.

Are there signs California will adopt a state estate tax soon?

Yes, legislation has been proposed. A state-level estate tax has support among some lawmakers and could appear on future ballots. Rapid action is possible if budget needs or policy winds shift.

How will upcoming federal changes affect California families?

Absent Congressional action, federal estate tax exemption could drop to $7M per person (pre-TCJA levels) on January 1, 2026—drastically expanding the number of estates subject to tax (see IRS Estate Tax guidance).

Do irrevocable trusts still work if laws change?

Properly structured trusts, especially those created pre-legislation, can be “grandfathered” into older, more favorable tax treatment. The key is completing them before the window closes.

Ready to Lock In Your Legacy?

Don’t let phantom security lull you into inaction. California’s estate tax climate is in flux, and waiting may cost millions. Book a confidential, expert-driven estate tax strategy session with KDA today to discover the moves other HNW leaders are making—before the window closes. Your legacy deserves nothing less.

This information is current as of 8/16/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.

Book Your Tax Strategy Session

If you’re ready to take action and shield your legacy from changing estate tax laws, set up a confidential strategy consult with our senior advisors. We’ll equip you with a 5-year playbook, move fast before loopholes close, and show you dollar-for-dollar how your heirs can be protected. Click here to start your legacy planning session now.