California Estate Tax Rate in 2025: What High-Net-Worth Families Must Know to Preserve Wealth

For California’s wealthiest families, there’s one persistent question: Will an estate tax rate in California threaten your legacy in 2025? With rumors, misconceptions, and shifting federal exemptions, you’d be surprised how many “sophisticated” families get this wrong—and how much wealth is lost simply due to misunderstanding the rules. California doesn’t currently have a state estate tax—but a single slip-up on your federal estate plan can still cost your heirs millions.

Quick Answer: Is There a California Estate Tax?

The bottom line: As of 2025, California does not impose a separate state estate tax. However, if your worldwide estate (including out-of-state property) exceeds the federal estate tax exemption ($13,610,000 per individual in 2025), your heirs could owe up to 40% to the IRS. Poor planning or assuming “no state tax” means no action is one of the costliest mistakes for California’s high-net-worth individuals (HNWIs).

The Federal Estate Tax: The Real Threat for California Estates

While headlines may focus on the absence of a “California estate tax rate,” the reality is that the IRS estate tax is the biggest threat for affluent families. For 2025 returns, any estate larger than $13.61 million per person (or $27.22 million for married couples) is exposed to the federal estate tax rate—40% on every dollar above the exemption. For a $30 million estate, this means a potential $1.1 million+ tax bill after exemptions.

• 2025 Federal Exemption: $13,610,000/person; $27,220,000/couple
• Estate Tax Rate: Flat 40% above the exemption
• Issued by: IRS—not the California Franchise Tax Board

According to IRS Estate Tax guidance, assets to include are real estate (in any state), stocks, retirement accounts, business interests, collectibles—with no deductions for being a California resident.

Common Mistake: Waiting for a “Death Tax” in California

Thousands of California families believe estate taxes are a “future problem”—or that state lawmakers will reintroduce a “death tax”. The result: years wasted without advanced planning, leaving millions exposed to federal tax rates. In 2021, the proposed California Assembly Bill 310 would have reintroduced a statewide estate tax with rates up to 20%. Though it was defeated, many HNW families delayed critical planning, waiting “to see if the law passed”—a mistake that cost one KDA client $800,000 due to last-minute planning after the family patriarch’s sudden passing.

Transfer Tax, Step-Up in Basis, and Non-CA Properties: Advanced Traps

If your estate includes real estate or assets in states that do impose their own estate tax (New York, Massachusetts, Oregon, etc.), your heirs may owe tax there as well as to the IRS. Many high-wealth Californians mistakenly keep out-of-state properties in their own name, exposing them to double taxation.

Step-up in basis rules remain a powerful tool: for inherited assets, heirs generally receive a new tax basis equal to market value at date of death, potentially eliminating capital gains taxes on decades of appreciation (see IRS Topic No. 703).

Pro Tip: Transferring properties to irrevocable trusts or using sophisticated entity structures can shield assets—but only if executed years prior to death or before exemption sunsets. For more details, see our California Estate & Legacy Tax Planning Guide.

The Looming 2026 Exemption Cliff: A $7M+ Dollar Trap

Current high exemptions were set by Tax Cuts and Jobs Act of 2017 and are scheduled to “sunset” at end of 2025—dropping exemptions by 50% or more to inflation-adjusted ~$6-7 million per person. Consider these scenarios:

• A Silicon Valley family with $18M in stock and property could “lose” $5-6M of protected exemption, paying $2M+ more in tax unless proper gifts or transfers are made before Jan 1, 2026.
• Beverly Hills real estate owner: $24M net worth, now fully protected, could see $7-8M become taxable if rules revert—meaning a $2.8M+ new IRS liability unless action taken this year.

Red Flag Alert: Don’t assume you can “just gift” money December 2025. Use of advanced techniques such as Spousal Lifetime Access Trusts (SLATs), Dynasty Trusts, and business/family limited partnerships often require months—sometimes a year—for implementation and compliance review.

Action Step: Estate Freeze, Gifting, and Trust Planning in 2025

Don’t wait for California lawmakers—2025 is your window to lock in the highest exemptions. Top strategies include:

• Lifetime Gifting: Remove appreciating assets from your estate today. Gifts up to the federal exemption are tax-free. For HNW, consider gifts in trusts that preserve control.
• Irrevocable Trusts: Transfer life insurance, business interests, or even minority interests in property to trust structures, maximizing discounts and limiting estate exposure.
• Charitable Lead or Remainder Trusts: Support philanthropic causes and shrink your taxable estate while providing income for yourself or beneficiaries.
• Entity Restructuring: Ownership via LLCs or FLPs can create valuation discounts and protect assets from both the IRS and creditors.

Family office and ultra-high-net-worth (UHNW) clients should conduct full “estate freeze” reviews with experienced tax attorneys and CPAs to create tailor-fit plans that comply with IRS Publication 559 (regarding survivors, executors, and administrators).

Integrating Estate and Business Succession Planning

Estate taxes don’t just hit those with investment portfolios—California’s business founders often lose family firms due to liquidity issues created solely by the estate tax. That’s entirely avoidable if you implement a buy-sell agreement, key employee insurance policies, and assign business interests into well-structured trusts. For a detailed walkthrough, review our premium advisory services for high-net-worth families and business owners, tailored to multi-generational wealth transfer.

KDA Case Study: High-Net-Worth Family Avoids $3.2M in Federal Estate Tax Exposure

Persona: Multi-generational high-net-worth family, $19M in Bay Area real estate, $7M in stocks, with legacy charitable goals.

Problem: Family believed California’s lack of estate tax meant “no urgency,” waiting for possible 2026 law changes. No trusts, all properties and securities in parents’ name. Risked paying $5M+ if exemption dropped in 2026 with sudden death or incapacity.

KDA Strategy: We immediately coordinated a dual-track approach—accelerating $8M of lifetime gifts into Dynasty Trusts, moved $6M of investment property into an Irrevocable Life Insurance Trust (ILIT) with partial discount valuation, and restructured family business into LLC/Family Partnership. Coordinated parallel planning for substantial charitable remainder trust and customized gifting for grandchildren’s 529 plans.

Tax Savings: Secured current exemption on all lifetime gifts pre-sunset. Result: $3.2MM in immediate tax avoided, with future transfer of $12.5MM+ outside taxable estate. KDA fee: $22,000. Net ROI: 145x first year, millions more in future family savings and philanthropic impact.

FAQ: California Estate Tax and Advanced Planning

Will California reinstate an estate or inheritance tax?

There is no guarantee. Attempts have been made in Sacramento but all have failed since 1982. However, political shifts could change this. Smart families never rely on legislative stasis; they pre-lock strategies while federal and state laws permit maximum savings.

How do out-of-state properties affect my estate tax exposure?

If you own assets in states like Oregon or New York with their own estate tax (sometimes with exemptions as low as $1M), your estate must file returns there too. Trust or entity structure planning is essential to avoid multi-state double taxation. Working with a multi-state specialist is critical for global families.

What about the step-up in basis when leaving assets to heirs?

Heirs generally receive a step-up in basis to fair market value on death. This can eliminate decades of capital gains tax, but is useless if estate assets are sold or gifted during life. Some estate freeze techniques retain step-up for assets transferred late in life, while others (certain trust structures) do not. Always verify with your tax advisor and reference IRS Topic No. 703.

What must I do if I am above the federal exemption?

Have your estate attorney run current exemption scenarios now—and build a plan for 2025 and 2026 transition. Gifting, discounting, trust formation, and proper documentation (including IRS Form 709 for gift tax) are all vital. See California guide to Estate & Legacy Tax Planning for more detail.

Why Most High-Net-Worth Californians Overlook This

The real cost isn’t failing to worry about a potential California estate tax—the mistake is letting the absence of a state-level tax lull you into delay. You only get one shot at federal exemption locking, and no “do-overs” if the exemption drops or Congress rewrites the rules. Estate tax is a voluntary tax when you plan proactively—otherwise, it’s one of the fastest ways to lose a hard-won legacy.

Pro Tip: IRS and Congress do not give “grace periods.” The practical deadline for most 2025 estate planning strategies is October or November 2025, due to attorney and appraiser backlogs before the exemption cliff.

Bottom Line

The “no estate tax in California” story is only half the truth. The real threat is a 40% IRS levy for estates above $13,610,000 in 2025, and possibly much smaller exemptions—and much larger taxes—starting January 2026. For high-net-worth families, a strategy delay of just six months could cost millions. Get in front of legislation and use this “bonus window” for advanced wealth transfer.

This information is current as of 8/22/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.

Book Your Family’s Advanced Estate Tax Planning Session

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