Estate Tax Rate California: What High-Net-Worth Families Must Know for 2025
Most wealthy Californians assume estate tax isn’t a concern here because “California has no estate tax.” That belief could be costing families millions when federal rules shift—and leaving them open to overlooked risks as the political winds shift in Sacramento. In 2025, the landscape is changing, and understanding the real estate tax rate California families could face is non-optional for anyone serious about legacy planning.
Quick Answer for 2025
For 2025, California does not impose a separate state estate tax, but the federal government does—and the exemption is set to drop dramatically. If Congress allows current law to expire, the federal estate tax exemption will be halved to about $6.8M per individual (from $13.61M). Any assets above that threshold are taxed at a federal rate of up to 40%. California lawmakers are also considering proposals to introduce a state-level estate tax impacting estates above $3.5M. Bottom line: Affluent Californians must plan around both federal risk and possible state-level changes.
This information is current as of 8/20/2025. Tax laws change rapidly. Always verify latest IRS and FTB updates before acting.
Current Federal and California Estate Tax Rules (2025)
While there’s no California-specific estate tax today, every estate worth over $6.8M (individual) or $13.6M (married couple, combined) could face the IRS take in 2026—and earlier if someone passes before that rollover. Estates over the exemption are taxed at a marginal rate topping out at 40% federally (see IRS guidance). California nearly enacted a state estate tax in recent years, echoing proposals to impose a 12–16% state rate on estates above $3.5M. HNW families must plan for both possibilities.
- Federal exemption for 2025: $6.8 million per person, $13.6 million per couple (projected if TCJA sunsets)
- Federal estate tax rate: Up to 40% over exemption
- California estate tax rate: 0% currently, but potential for 12–16% in pending legislation
Real-World Impact: What Does That Mean for HNW Estates?
If your estate is $20M, a death in 2025 could result in federal estate tax of nearly $2.88M after exemptions. If California adds a 16% state levy on assets above $3.5M, that’s another $2.64M+ gone—over $5.5M combined. This isn’t theoretical: if your family owns real estate, business interests, and investment portfolios, you’re exposed unless proactive steps are taken in 2025.
Strategic Moves Before the Exemption Sunsets
With the federal exemption slashed soon, advanced planning in 2025 isn’t a luxury—it’s a necessity for families with $5M+ in net worth. Proven strategies include:
- Lifetime gifting: Move assets to heirs now, using both annual exclusions ($18,000 per donee) and your unified exemption (IRS Gift Tax guidance).
- Irrevocable trusts (IDGTs, GRATs, SLATs): Shift growth outside your estate to freeze current values at today’s high exemption.
- Family partnerships/LLCs: Aggregate and discount asset values for lower transfer tax exposure (must follow IRS guidance on FLPs).
- Charitable giving: Use charitable trusts or direct giving to achieve legacy and deductions.
- Installment sales to intentionally defective trusts: Move appreciating assets with minimized gift/estate tax impact.
- Life insurance: Fund expected estate tax with irrevocable life insurance trusts (ILITs), keeping proceeds outside your taxable estate.
For a detailed breakdown of legacy strategies for large estates—including step-by-step implementation—see our California Guide to Estate & Legacy Tax Planning (2025).
Why Most Families Miss These Opportunities
Red Flag Alert: The most common mistake: waiting for Congress or Sacramento to act, then scrambling to update your plan too late. Most estate planning rushes happen after a health crisis. By then, options are limited. Another misstep: assuming California’s lack of current estate tax makes proactive action optional. With real proposals for a 12–16% state estate tax, your plan must be “future-proofed.” Lastly, families often underestimate their estate’s value due to real estate appreciation—pushing them over the new, lower federal exemption without realizing it.
Pro Tip:
Run a full, independent appraisal of all real estate, investments, business holdings, and insurance. KDA’s estate planning team routinely finds $2–$4 million understated on initial client lists—meaning the IRS (and possibly Sacramento) are positioned to take a far larger bite than you expect.
How to Leverage Professional Estate Tax Planning Services
Fee-based attorneys and one-size-fits-all software are ill suited for high-net-worth complexity. Advanced wealth transfer strategies should be coordinated by professionals deeply familiar with California and federal implications—not just will drafters. That means integrating gifting, trusts, insurance, business succession, and charitable giving into a coordinated whole. Explore premium advisory services to see how truly effective estate tax mitigation requires tailored, proactive action in 2025.
Anticipating Political Changes: The California Uncertainty
Several bills have been introduced in the California legislature to impose a state-level estate tax (sometimes called “death tax”) on estates above $3.5M, with rates as high as 16%. None have passed to date, but with budget pressures and income inequality debates, this remains a real risk. HNW families must prepare now—since passing a law early in the year could mean effective dates before you have time to act. Stay connected to legislative updates, and ensure your planning is nimble.
KDA Case Study: Family Office Shields $32M from Double Taxation
Persona: High-net-worth multi-generational family (business owner + real estate/portfolio)
Situation: The Smith family, worth $32M split among real estate, a tech business, and marketable securities, faced risk of losing $8M+ to federal and potential state estate tax in coming years. KDA mapped assets, ran appraisals, and identified $6M at risk due to planned reduction of the exemption. Working with estate counsel, KDA implemented:
- IDGT and SLAT trusts for $10M in appreciating assets
- Partial ownership discounting using a family LLC
- Year-end 2025 gifting to take advantage of high exemptions
- Purchased $4M ILIT policy to cover remaining estate liabilities
Result: The Smiths avoided $4.7M in avoidable federal estate tax, positioned to dodge another $1.2M if California enacts a state tax, for a total risk mitigation of nearly $6M. For $29,000 in advisory/legal fees, first-year ROI: 20x savings.
FAQ: Estate Tax Rate California 2025
1. Is there still no estate tax in California in 2025?
As of August 2025, there is no California-specific estate tax, but federal estate tax still applies to estates above the exemption threshold, and Sacramento could change rules at any time.
2. What is the federal estate tax rate for 2025?
For deaths in 2025, the federal estate tax rate tops out at 40% for assets above the exemption ($6.8M per person, projected for 2026 if TCJA sunsets; $13.61M for 2024). See the latest rate chart in IRS Publication 559.
3. Could California pass its own estate tax?
Yes. Multiple bills have been proposed (most recently AB 310 in 2023) to impose a state estate tax of 12–16% on estates above $3.5M. No bill has succeeded, but political pressure makes this a live risk.
4. What counts toward my estate?
Everything: real estate (including family homes), privately held businesses, investment accounts, retirement accounts, insurance owned by your estate, valuable property (art, cars, jewelry). Valuations for illiquid assets must be substantiated—otherwise the IRS will substitute its own higher numbers.
5. Are there ways to avoid—even if new laws pass?
Yes, with advance trust planning, gifting, valuation discounts, and charitable strategies, you can dramatically reduce (or, in some cases, eliminate) estate tax exposure. But most strategies require action before the tax year of death or law change.
What the IRS Won’t Tell You About Estate Tax Audits
Large estates are high audit risk (exam rates can exceed 12%). IRS routinely reviews valuation discounts, life insurance policies, late or insufficient filings, and incomplete asset disclosures. Red flag: making large gifts but failing to file Form 709 (IRS Form 709 info). Robust documentation and working with experienced pros is non-negotiable at HNW asset levels.
Mic Drop Sentence: “Federal and state estate tax threats aren’t a distant possibility—they’re a multimillion-dollar near-certainty for HNW families who wait until 2026 to act.”
What If Congress Extends the Higher Exemption?
If Congress acts to extend the current high exemptions, the urgency may relax—but the strategies above add value regardless, by keeping future asset growth outside your estate and shielding from unexpected state-level risk. Never plan on “wait and see” with estate tax—it’s only a gift if you act in advance.
Are Life Insurance Proceeds Tax-Free?
Only if properly held outside the taxable estate—typically in an irrevocable life insurance trust (ILIT). Direct ownership means proceeds are subject to estate tax calculation at death.
For a comprehensive reference, see KDA’s Estate & Legacy Tax Planning Guide (2025).
Book Your Wealth Preservation Strategy Session
Concerned that this year’s changes could trigger seven- or even eight-figure tax bills for your family? Our expert team maps a step-by-step strategy unique to your holdings—so you avoid forced asset sales, IRS penalties, and legacy disruptions. Click here to reserve your private consultation with a KDA wealth planning architect today.
