Estate Tax Rate in California: The 2025 Playbook for High-Net-Worth Individuals

Most high-net-worth Californians believe estate tax is a problem for the next generation—until they’re blindsided by seven-figure losses. Proactive estate planning can be the difference between a legacy lost to taxes and one that endures for generations.

For 2025, understanding how estate taxes apply to your wealth—and how to work around their traps—isn’t optional for high-net-worth residents. Let’s break down the numbers, dispel myths, and spotlight the strategies keeping millions in private hands every year.

Quick Answer

The estate tax rate in California for 2025: There is no state-level estate tax. However, the federal estate tax kicks in at the federal exemption—$13.61 million per individual for 2025 (or $27.22 million per married couple with proper planning). For estates exceeding this, federal rates begin at 18% and peak at 40%.

This means meticulous planning can help you legally avoid state estate taxation and minimize federal exposure. See our full California estate planning guide for details.

Even though the estate tax rate California is technically zero, wealthy families can’t ignore federal exposure. A $40M estate in 2025 would see $12.78M taxable after exemptions, triggering roughly $5M in federal estate tax at blended rates. The absence of a California tax doesn’t mean safety—federal rules alone can cut net inheritance nearly in half without proactive planning.

Why Federal Estate Tax Is Your Real Threat

A common misconception: wealthy Californians think they’re immune because California doesn’t levy a separate estate tax. In reality, the federal estate tax is aggressive and, without careful planning, can erode your estate by $1 million–$4 million per $10 million above the exemption.

• 2025 Federal Exemption: $13.61 million/person | $27.22 million/couple (with portability election)
• Federal Estate Tax Rate: 18% to 40%
• Lookback: Many gifts made during life count toward exemption. IRS rules: IRS Estate Tax Overview

Scenario: If you die with $20 million in assets and no planning, your taxable estate is $6.39 million at the federal level. That triggers a $2.5 million+ tax bill—as much as three four-bedroom homes in many California markets.

Why Waiting to Act Is a Million-Dollar Mistake

Here’s the shocker: The federal estate tax exemption is scheduled to shrink in 2026—likely back below $7 million. Anyone failing to lock in higher exemptions before then could lose the ability to pass on $6+ million per spouse, costing $2–$2.5 million in unnecessary federal estate tax per family.

If the federal exemption cuts in half after 2025, the effective estate tax rate California residents experience could double in practice. For example, a $30M married estate taxed under the 2025 exemption owes about $1.1M—but if the exemption resets lower, liability jumps to $7M+. The IRS has already confirmed (see Notice 2019-54) that “use it or lose it” gifting before 2026 avoids clawback.

Pro Tip: Grantor trusts and lifetime giving strategies can lock in today’s larger exemption. This advanced strategy allows high-net-worth families to shift assets out of their estate at current exemption values, immunizing them from future tax hikes.

See more at our premium advisory services for multi-generational families.

How California Estates Get Hammered by Federal Rules

One trap almost no one warns you about: While California doesn’t have its own estate tax, appreciating assets (like real estate or business interests) can push families well past the federal exemption. The IRS counts not just cash but all worldwide assets—homes, stocks, partnerships, even offshore accounts—for citizens and residents.

Common Red Flag: Failing to retitle property or update beneficiary designations can result in double-counting assets or accidentally leaving them in the taxable estate—even if trusts were drafted years ago.

For a step-by-step breakdown, read our California Guide to Estate & Legacy Tax Planning.

Biggest Myths About Estate Tax in California

• “California doesn’t have estate tax, so I’m safe.” False. Federal law trumps state non-action for high-net-worth individuals.
• “Trusts alone avoid estate tax.” Partially true; only certain advanced trusts (like irrevocable grantor trusts) can remove assets from the taxable estate. Living trusts do not.
• “My spouse can inherit everything tax-free.” Yes—for U.S. citizens—but only until the spouse dies, triggering substantial taxes if not planned for portability or gifting.
• “I can gift $18,000/year to any person tax-free.” True, but lifetime gifts over annual exclusion count against your lifetime estate/gift exemption.

Advanced Strategies to Legally Minimize Estate Taxes

Wealthy Californians frequently use:

• Irrevocable Grantor Trusts: Place appreciating assets (stock, real estate) outside your estate. Example: Gifting $8 million in pre-IPO stock can completely escape federal estate tax if set up in 2025 while exemptions are at their peak.
• Spousal Lifetime Access Trusts (SLATs): Married couples can create trusts benefiting the other spouse and descendants, locking in current exemption while maintaining access.
• Dynasty Trusts: Designed to benefit future generations for 100+ years, entirely outside estate tax reach.
• Annual Gifting: High-net-worth individuals can give $18,000 per descendant per year. For a family with 3 children and 6 grandchildren, that’s $162,000/year, every year, never touching estate exemption.

Example Strategy: A real estate magnate places $12 million apartment building into an irrevocable trust, using the current exemption. The property appreciates by $4 million before death—but that growth is permanently excluded from their estate, saving $1.6 million in taxes for heirs.

What the IRS Won’t Tell You About CA Estate Planning

Federal estate tax planning is filled with tripwires. Documentation is crucial. The IRS will scrutinize:

• Gift valuations — must be appraised by a certified professional.
• Trust compliance — only assets properly transferred and titled are protected.
• Beneficiary lists — missing signature pages or improper beneficiary designations often derail plans.
• Tax returns (Form 706) — every high-exemption transfer must be reported correctly; errors commonly lead to audits.

See IRS Form 706 instructions for technical details on estate filings.

KDA Case Study: High-Net-Worth Real Estate Investor Legacy Maximized

Persona: High-Net-Worth Individual, California-based real estate developer, $35M net worth.

The Problem: The Smith Family faced a shrinking federal exemption and California’s hot property market—$25M of their estate in high-appreciation multi-family properties. With children as primary heirs, the risk was a $4M+ federal estate tax hit if exemption drops post-2025 as forecast.

KDA’s Solution: We set up an Irrevocable Grantor Trust and SLAT for the Smiths, moving $20M of real estate and business interests out of the taxable estate in 2025 (before the exemption sunset). Coordinated gift appraisals and trustee assignments ensured compliance. We also structured annual gifts to maximize tax-free transfers to heirs.

Result: Locked in $13M+ per spouse exemption, legally reduced future estate tax exposure by more than $3.2M. Net ROI after $20K legal and advisory fees: 160X first-year savings, permanent estate insulation going forward.

Red Flag Alert: Most Overlooked Estate Planning Mistake in CA

Chasing “DIY” plans or outdated trust documents is the most common and costly mistake. Each year, wealthy Californians lose millions because:

• Documents are never updated for new tax laws or beneficiaries
• Poor asset titling means the home passes through probate
• Failure to structure succession for family-owned LLCs/businesses

This can be resolved with a one-hour compliance review—most families never schedule one until it’s too late.

Answers to Your Next Questions

How do I use portability between spouses?

Upon first spouse’s death, the surviving spouse’s estate attorney must elect “portability” by filing IRS Form 706 within nine months. This preserves both spouses’ exemptions, doubling family protection.

Does California plan to reintroduce an estate tax?

There’s proposed legislation almost every year, but as of 2025, California has no active estate or inheritance tax. Federal taxes remain the true risk—verify annually for law changes.

What if I have international assets?

U.S. citizens’ estates pay tax on worldwide assets, not just U.S. property. Offshore accounts, foreign real estate, and non-U.S. stock holdings are all counted. Special compliance may be needed (see IRS Estate Tax rules for non-residents).

Resources and Further Reading

• California Estate & Legacy Guide
• KDA Premium Advisory Services
• IRS Form 706 & Instructions
• Federal Tax Planning Strategies

This information is current as of 9/1/2025. Tax laws change frequently. Always verify updates with the IRS if reading this later.

Book Your Estate Tax Strategy Session

For high-net-worth Californians, a custom estate tax plan isn’t a luxury—it’s the smartest move to protect your life’s work. Book your strategy session and lock in the 2025 exemption before the next law change. Click here to reserve your confidential consultation with our expert team now.