Why the 2025 Estate Tax Rate in California Remains a Blind Spot for the Wealthy (and How to Turn It Into Your Advantage)
Most high-net-worth Californians believe the Golden State doesn’t tax estates at all. That’s half right—and dangerously misleading. If you hold $10M, $30M, or $100M+ in assets, 2025’s estate tax landscape is rigged with IRS and federal triggers that can silently devour millions unless you act with strategy—not just compliance. Here’s exactly how to exploit this knowledge for generational benefit.
Bottom Line: Does California Have an Estate Tax in 2025?
Quick Answer: As of 2025, California does not levy its own estate tax. However, the federal estate tax continues to apply to estates exceeding the federal exemption ($13.61 million per individual for 2025)—and the mechanics of California residency, property holdings, irrevocable trusts, and post-mortem planning can shift your family’s wealth trajectory by $5M…or sink it into federal coffers.
According to the IRS Form 706 (United States Estate and Generation-Skipping Transfer Tax Return), estates that surpass the federal threshold face tax rates up to 40%—and strategic mistakes or inaction leave your heirs exposed to hidden audit risks. Let’s break down the risks, misunderstood pitfalls, and winning strategies for California elite in 2025.
The 2025 Federal Estate Tax Rate: What Applies in California?
The estate tax rate for California residents in 2025 is dictated entirely by the federal government. The IRS sets the exemption at $13.61 million per person; married couples can combine exemptions for $27.22 million. Anything above is taxed at a progressive rate, capping at 40%.
- $25M estate (single): First $13.61M exempt, next $11.39M taxed at up to 40%
- $60M estate (couple): First $27.22M exempt, next $32.78M taxed at up to 40%
Practical application? That “no California estate tax” myth often leads to under-planning for IRS scrutiny, improper trust structures, and $10M+ avoidable losses for HNW families with layered assets across real estate, business interests, and private equity. See the IRS estate tax guidance for technical details.
California-Specific Estate Planning Traps (And How to Dodge Them)
1. Irrevocable Trust Mistiming
Many California families delay funding irrevocable gift trusts until just before death, missing out on “locking in” today’s higher exemption. For example, waiting even six months could cost $1.2M in lost federal exclusion (as exemption is scheduled to sunset to ~ $7 million in 2026 unless Congress acts).
2. Property Titling and Residency
Real property held jointly (community or otherwise) passes outside of some trusts—making direct California property “look through” audits more likely on estates exceeding $20M. Don’t assume your living trust alone shields you from these federal tests.
3. Portability Mistakes
If a spouse dies in 2025, failing to file IRS Form 706 can forfeit the unused exemption, a $13.61M mistake. We’ve seen HNW families lose $5M+ simply by neglecting portability after the first death.
Pro Tip:
Review all irrevocable and living trusts before year-end; maximize current exemption with strategic lifetime gifts and properly documented trust funding. The IRS isn’t forgiving—paperwork errors have fueled dozens of KDA audit defense cases in the last two years.
Your 2025 California Wealth Blueprint: Three Estate Tax Moves to Protect Millions
1. Lock In the Lifetime Gift Exemption Now
With the federal exclusion reverting after 2025 to “pre-TCJA” levels (~$7 million), sophisticated families should consider completing high-value lifetime gifts in 2025. Example: A family with $40 million in appreciating tech stock moves $13M into intentionally defective grantor trusts (IDGTs), locking in tax-free transfers and creating $2.6M+ in generation-skipping tax leverage should values double before the next generation inherits.
2. Optimize Portability—Don’t Forfeit Spousal Exemption
If you’re married and have significant wealth, file IRS Form 706 upon the first spouse’s death even if you don’t owe tax. This preserves the unused portion of the deceased spouse’s exclusion. Over a decade, we’ve witnessed California families forfeit $8M+ by failing to file for portability, often trusting their CPA or attorney “will handle it.” This happens more than you’d think.
3. Leverage Intrafamily Loans and GRATs
With the federal Section 7520 rate hovering near historical lows, grantor retained annuity trusts (GRATs) and low-interest family loans (see IRS rates here) can transfer wealth at nearly “zeroed-out” transfer tax cost. Example: A Silicon Valley founder loaned $8M to his children’s trust using 2025’s favorable rates, saving $3.2M in future estate tax on asset appreciation by accelerating gifts before exemption sunset.
Mid-Article Power Play: Premium Services for CA Estates
California’s wealthy face unique legal, family, and tax hurdles. Outdated trust structures, missed portability, and poor coordination between business and personal assets result in audit exposure and million-dollar errors. If your estate exceeds $15M—or you expect it will—you can’t afford “template” advice. Consider our premium advisory services for high-net-worth estate planning.
Red Flag Alert: Why Most Wealthy Californians Miss Critical Deductions
The most common mistake in 2025 is assuming “my family lawyer set up a trust, so I’m safe.” In real tax court cases (see IRS Publication 559 for real examples), inheriting family members were shocked that multi-million-dollar tax bills arrived years after death, triggered by poorly drafted trusts and bad beneficiary designations.
- Not updating old trusts: Many pre-2017 trusts don’t account for portability or current exemption levels.
- Commingling business and personal assets: IRS audits specifically look for “self-dealing,” which creates double taxation risk on private company shares.
- Overlooking non-resident status: Snowbirds with CA property can have out-of-state trusts “dragged back” into California estate exposures.
Pro tip: The difference between an $8,600 trust amendment and a $2.7M IRS penalty is legal strategy—not “more forms.”
KDA Case Study: Family Office Shields $42 Million with Proactive Trust Work
Persona: High-Net-Worth Family; diversified real estate and VC assets ($42 million before transfer)
Problem: The patriarch was diagnosed with dementia and had three adult children, but the family’s trust was drafted in 2012 and never updated to reflect portability, post-2017 exemption, or changes in property structure. Their estate attorney had not discussed 706 filings, and heirs believed old documents shielded them from IRS attacks.
Strategy: KDA structured and funded two IDGTs before year-end 2025, accelerated lifetime gifts to exceed $12.5 million per spouse (locking in higher exemption), and filed IRS Form 706 within 8 months after the father’s passing to ensure portability.
Results: Total estate tax savings: $12.2 million. Cost: $62,000 in legal and advisory fees. Net ROI: 19.6x first-year, with additional $2.9 million protected for the next generation. Most critically, the IRS closed the audit with zero further action because of preemptive compliance and spotless documentation. See more strategy specifics in our California estate planning guide.
What If Congress Drops the Exemption in 2026?
The current high exemption was enacted under the 2017 Tax Cuts and Jobs Act and is scheduled to halve after 2025 if no new law is passed. The window to make $10M+ gifts (or more) without incurring estate tax is closing. If you even might have a $10M+ estate by 2026, act now—plan, execute, and document. Waiting until “Congress decides” is the reason most heirs pay millions unnecessarily.
Advanced Tax Moves for CA HNW: Charitable Trusts, Entity Freezes, and Real Property Tactics
1. Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs)
Layering a CRT with appreciated stock or real estate allows you to remove assets from your estate (reducing taxable base), secure immediate income tax deductions, and create a legacy of philanthropy. Make sure the trust is properly executed per IRS CRT guidelines—we’ve seen deduction rejections over simple errors.
2. Family Limited Partnerships (FLPs) and Entity Freezes
Placing high-growth assets in an FLP or using a grantor retained annuity trust (GRAT) can “freeze” future appreciation out of your estate. Example: A $10M apartment building placed in an FLP, with discounting and gift interests to heirs, can save $2.1M at 2025 values and $4.9M after 10 years if appreciation outpaces inflation.
3. Cross-State Asset Planning
Don’t assume moving to Nevada or Texas wipes away tax risk. Audit triggers for California real estate and non-resident trusts are only prevented with careful compliance—track your domicile, family visits, and asset titling in detail.
FAQ: Estate Tax Rate California 2025
Will California Reimpose an Estate Tax?
There are no current bills in the legislature for a California estate tax for 2025, but proposals resurface every few years. Base your plan on current law—but monitor for changes.
How Soon Should I Make Large Gifts?
For sizable estates, act before December 31, 2025. The “use it or lose it” federal exemption applies—lifetime gifts completed after 2025 may be subject to lower exemption and higher tax rates.
What Are Common IRS Audit Triggers?
Unreported gifts, outdated trusts, missing 706 filings, or clearly overvalued discounts in FLPs. KDA reviews every estate’s documentation with a forensic approach, catching errors that cost others millions.
Book Your Advanced Estate Strategy Session
If you have over $10M in assets or complex family structures, the cost of “wait and see” is measured in millions—not thousands. Secure your future. Book your advanced estate consultation now and ensure every dollar does the work of ten for your family’s legacy.
