California Estate Tax: What High-Net-Worth Individuals Need to Know for 2025

Most high-net-worth Californians assume estate taxes are off the table—but missing recent legal and federal updates could expose you to massive multi-million-dollar surprises. Let’s set the record straight and outline what you really need to do if you’re managing substantial assets or legacy wealth in California in 2025.

Quick Answer: The State of California Estate Tax in 2025

California does not have a state estate tax as of 2025. However, federal estate taxes still apply to those with large estates, and shifting political winds in Sacramento make it dangerous to ignore future planning. Keeping a step ahead with structured portfolios, gifting, and trust strategies remains non-negotiable. Explore in-depth estate and legacy planning strategies here and see how legislative shifts impact high-net-worth residents.

How Federal Estate Tax Impacts California Residents

For all the headlines, the real bite comes from the federal side. For 2025, the federal estate tax exemption is projected at $12.92 million per individual. (For married couples, that’s nearly $25.84 million if portability is used). Estates exceeding that face a top federal rate of 40%—potentially triggering eight-figure tax bills for the ultra-wealthy. See official exemption details at IRS Estate Tax FAQ.

Example: If your estate is valued at $17M, the amount exposed to federal estate tax would be approximately $4.08M, resulting in a $1.63M tax due at settlement.

Why Ignore State Estate Tax at Your Peril—And the Trap California Hides

Just because California doesn’t levy a separate estate tax doesn’t mean you’re protected. Bills proposing an estate tax have resurfaced in multiple sessions in Sacramento since 2019. In 2020, SB 378 nearly imposed a California estate tax—proving the state is eager to revisit this revenue stream if federal law shifts or budgets tighten.

Don’t let “tax-free” headlines lull you into passivity. If you’re a business owner, real estate investor, or family office with $10M+ in California assets, you must prepare structures that are state- and federal-resilient.

Estate Planning Moves for High-Net-Worth Californians

• Irrevocable Trusts: Remove appreciating assets from your taxable estate. Properly set up, these can avoid future state-level taxes as well as federal.
• Lifetime Gifting: The annual federal gift tax exclusion is $18,000 per recipient in 2025 (see IRS Gift Tax FAQ). Strategic annual gifts lock in value for heirs tax-free now.
• Family Limited Partnerships (FLPs): Discount large real estate or business interests, leveraging valuation rules if current law persists.
• GRATs and CRTs: Grantor Retained Annuity Trusts and Charitable Remainder Trusts shelter appreciation and deliver philanthropic benefits.
• Portability Elections: Surviving spouses must file a timely federal return (Form 706) to “port” unused exemption—critical for dual-income/dual-asset marriages.

Pro Tip: The window for ultra-high exemptions is expected to close after 2025 due to scheduled federal sunset provisions. Now is the time for proactive restructuring.

Your Mid-Strategy Check: Are Your Assets Audit-Ready?

Legally avoiding excessive taxation means keeping documentation up-to-date. IRS scrutiny has increased for large estate transfers (see IRS Publication 559). Every trust, distribution, and valuation methodology must be defensible to prevent future audits, penalties, or disallowances. Relying solely on a will or single trust vehicle is a risk most high-net-worth individuals only realize too late.

Why Most Wealthy Families Fall into California’s Estate Planning Trap

Red Flag Alert: Most high-net-worth families set trusts or gifting schedules and fail to revisit them as laws change. If proposals similar to SB 378 pass, “grandfather” clauses may NOT protect previously transferred assets. Assumptions about sheltering assets in Nevada or Delaware also fail unless residency and trust situs are ironclad.

Common Mistake: Assuming past strategies remain effective indefinitely. Many advisors simply file annual trust accountings without reevaluating portfolio alignment with new IRS and FTB requirements.

Our premium advisory services provide annual stress-tests for existing estate structures—closing audit risks that catch even the most prepared heirs unaware.

KDA Case Study: Multi-Property Business Owner Avoids IRS Nightmare

Persona: High-Net-Worth Individual (Commercial Real Estate, $21M Net Worth)
Summary: The client assumed their $12M in California real estate + $9M closely-held business was sheltered by prior legacy trusts. After 2023’s IRS audit trigger letter, KDA conducted a comprehensive review, found outdated trust language, and established new GRAT and LLC structures.
Results: Reduced exposed estate from $21M to $9M. Projected tax savings: $2.9M in 2025. KDA fee: $78,000. First-year ROI: 37x. Heirs are shielded from both current and potential CA/Federal changes.
Lesson: Regular planning and up-to-date legal work pay exponential dividends—especially as tax environments shift year-to-year.

Will This Really Affect Me in 2025?

If your estate exceeds the federal exemption or you own appreciating assets in California, you’re already a target for future tax increases and IRS scrutiny. It’s not IF, but WHEN—especially with sunsetting exemptions and Sacramento’s appetite for new taxes.

FAQ: California Estate Tax Questions Answered

Does California have an estate or inheritance tax in 2025?

No. Despite recurring legislative attempts, California does not currently impose its own estate or inheritance tax. But federal estate taxes apply, and law can change quickly.

How can I protect against possible future state taxes?

Set up flexible trust and gifting structures now. Record all documentation, get regular reviews, and stress-test your portfolio with an expert who monitors both federal and California bills yearly.

What’s the deadline for making tax-advantaged gifts?

Gifts must be made before December 31 each year to count for the annual exclusion. For larger trusts or GRATS, begin planning at least 6-9 months before year-end to avoid rushed legal work.

IRS Links and Citations for 2025

• IRS Estate Tax Overview
• About Form 706: Estate Tax Return
• Publication 559: Survivors, Executors, and Administrators
• Estate and Gift Tax FAQs

Book Your California Estate Tax Strategy Session

Your legacy is too important to leave exposed. If your California assets or business holdings surpass $10M, schedule your confidential strategy session with our expert team now. Identify savings opportunities, shield heirs from political risk, and ensure your estate plan remains bulletproof—no matter what Sacramento does next. Click here to book your consultation now.