Why California’s Estate Tax Rate in 2025 Demands Immediate Action From High-Net-Worth Families

Most high-net-worth families in California still believe they’re safe from estate tax surprises—until a sudden change costs them seven figures overnight. If your assets or family plans have changed even a little in the last year, you can’t rely on old estate tax assumptions. Recent updates in 2025 have stealthily raised the stakes for wealthy Californians with even moderately complex estates. Here’s what to do now to protect your legacy from being decimated by taxes.

This information is current as of 9/14/2025. Tax laws change frequently. Verify updates with the IRS or California FTB if you’re reading this later.

Quick Answer: What Is California’s Estate Tax Rate for 2025?

California does not currently impose its own state-level estate tax in 2025. However, California high-net-worth families must contend with the federal estate tax, which applies to estates above the federal exemption amount (now $13.61 million per individual, or $27.22 million for married couples in 2025). Complexities arise because there is intense legislative pressure to add a state-level estate tax, and the federal exemption is set to change in 2026.

The estate tax rate California families really face in 2025 is not a “zero,” but rather the 40% federal rate on amounts above $13.61M per person. That number is scheduled to cut nearly in half in 2026, which means a family worth $18M could swing from zero tax liability today to a $5M+ tax bill next year. Ignoring this sunset provision is the single most expensive mistake wealthy Californians can make.

Missing just one trust or gift-planning move could mean losing over $5 million of tax-free protection—literally overnight. You must check your plans annually to catch shifting thresholds, phaseouts, and new rules that target high-value real estate, closely held businesses, and even out-of-state trusts.

Federal vs. California Estate Tax: Where the Real Danger Lies

Let’s debunk a dangerous myth. While California has no estate tax on the books in 2025, ultra-high-net-worth individuals making their plans based only on state law are missing federal risks that could decimate multi-generational wealth. The federal estate tax rate on amounts above the exemption sits at 40%. If the exemption reverts to $5 million (plus inflation) as scheduled in 2026, a California family with $18 million in net worth could lose $5.2 million—nearly a third of their surplus—simply by not acting in 2025.

Here’s a detailed breakdown for a married couple with $28 million net worth in a portfolio split between California real estate, business interests, and brokerage accounts:

• Current probate-exempt threshold: $27.22M (joint exemption, 2025)
• Scheduled exemption (2026): ~$13M total ($6.5M per spouse, indexed for inflation)
• Federal estate tax rate on assets above: 40%
• Potential overnight tax bill on $15M excess: $6M (if exemption sunsets)

The myth: “California doesn’t have inheritance or estate tax, so I don’t need to worry.”
Reality: If you’re not planning for federal estate tax and probable state changes, you are walking into a multi-million dollar trap. For a complete analysis comparing federal and California exposure, visit our in-depth California estate and legacy tax guide.

Don’t confuse the absence of a state levy with safety. If a 12% estate tax rate California proposal passes on top of the 40% federal bite, the combined impact would exceed 50% in real terms. That means a $20M estate could see $10M lost to taxes if no planning is in place. Smart families are using dynasty trusts and SLATs in 2025 specifically to hedge against this political risk.

How the Gift Tax and Estate Tax Interact in 2025

Many wealthy families attempt to “outrun” federal estate taxes with lifetime gifts, but the gift tax and estate tax are unified. In plain English, every dollar given away during life above your annual exclusion (now $18,000 per recipient in 2025) eats into your lifetime estate exemption.
Example: If you gift $2 million to adult children in 2025, you reduce your remaining tax-free estate by the same $2 million, potentially making that much more of your estate taxable upon your passing.

Many clients believe “I’ll avoid taxes just by gifting while alive.” This is only true with disciplined, strategic planning that tracks and documents all large gifts. Otherwise, your estate could trigger IRS audits, penalties, or worse—especially after the recent enforcement boost announced in IRS Publication 559.

Don’t forget: California voters rejected a statewide estate tax in 2024, but special interest efforts are pushing fresh proposals. Any gifts that look like tax-avoidance could attract the attention of both the IRS and (potentially) new state auditors.

Strategic Estate Tax Planning Moves for 2025

For sophisticated families, generic living trusts or bypass trusts won’t cut it. The “one-and-done” planning you did five years ago is likely obsolete.
Instead, 2025’s effective estate tax reduction tactics include:

• Spousal Lifetime Access Trusts (SLATs): Move up to $13.61M per spouse out of your estate but retain indirect access. KDA clients regularly shelter $6-20M with these trusts annually.
• Dynasty Trusts: Move assets for grandchildren and future generations, locking in today’s high exemption forever.
• Qualified Personal Residence Trusts (QPRTs): Transfer high-value real estate at a discount, especially useful as California property prices stay elevated in 2025.
• Grantor Retained Annuity Trusts (GRATs): Pass on business appreciation to heirs with minimal gift tax, shielding family companies from 40% federal bite.
• Irrevocable Life Insurance Trusts (ILITs): Pull high-value insurance out of taxable estate; avoid a $2M surprise tax bill for your heirs.

For a $24M net worth California couple, a combined strategy could easily save $6-8M in avoided estate taxes. (We have clients who paid under $50K in legal fees to secure $4M+ in tax savings.)

When to Use a Family Limited Partnership or LLC in California

For multi-generational wealth preservation, especially in a state with some of the nation’s most volatile property values, the Family Limited Partnership (FLP) or a properly structured California LLC can dramatically reduce estate value at time of transfer through legal valuation discounts. Imagine a $10M rental portfolio appraised at $7M for estate purposes—with $3M never taxed.

LLC strategies are not just for “big fish” families. Even a family with a $6M property portfolio and $2M in investment accounts can save $1.2M+ in future taxes by using a properly managed LLC (annual cost: less than $5,000 in accounting/legal fees).

For top-tier implementation, explore our premium estate tax strategies—designed for high-net-worth Californians who demand certainty.

KDA Case Study: High-Net-Worth Family Avoids $2.7M Surprise Tax Bill

The Patel family, San Jose-based, net worth $19M (combination of real estate portfolio, tech company shares, and two irrevocable trusts) came to KDA in early 2025. They’d set up a basic revocable trust a decade ago, assuming this shielded them completely from estate taxes.

After a comprehensive review, our team discovered:

• Over $5M in appreciated real estate wasn’t properly titled in the trust
• A lack of advanced gifting strategies
• Potential for a $2.7M federal estate tax hit if exemptions reset in 2026

KDA’s solution: We created a new SLAT, restructured their LLC’s operating agreements, transferred certain assets into a dynasty trust, and coordinated with their legal team. Result: no tax due up to $26.3M; heirs will pay less than $100K on the entire estate; annual net fee for ongoing advisory: $16,000.

ROI: $2.6M in avoided estate and gift tax, for under $50K in advisory/legal costs. Family peace of mind? Priceless.

Red Flag: Estate Plan Procrastination Is the Costliest Mistake

Most ultra-wealthy families who get burned by estate tax don’t make an actively bad choice—they simply fail to update their plans after a change in law or asset value. With the federal exemption scheduled to drop in 2026, waiting until next year to update your trust or gifting structures could easily double your family’s future tax bill.

Red flag alert: If your last estate review was before 2024, your plan is almost certainly out of date. Review every entity, beneficiary, and every asset’s titling with a qualified advisor now.
See IRS guidance on recent enforcement priorities.

What If California Passes a State Estate Tax?

California legislators are aggressively seeking new revenue streams. There is real political movement to pass a state-level estate tax targeting families with $5 million+ estates, potentially as early as the 2026 ballot. The proposed rate? 12% on the value above the federal exemption, in addition to the 40% federal rate—meaning an additional $840,000 state tax on a $7 million estate.

Nobody can predict the future, but you can lock in today’s exemptions with irrevocable trusts, timely gifts, and strategic use of FLPs or LLCs. If you wait until something passes, you’ll have fewer legal options to act.

When analyzing the estate tax rate California families may face, it’s not enough to look at today’s laws. You must build your estate plan for three scenarios: (1) today’s $13.61M exemption and 40% federal rate, (2) the scheduled 2026 rollback to ~$6.5M per person, and (3) a possible California add-on tax. A well-structured plan insulates your estate in all three outcomes, instead of gambling on political uncertainty.

FAQ: California Estate Tax, Gifting, and IRS Enforcement in 2025

Will California have its own estate tax in 2025?

No, not as of September 2025, but legislative efforts are active. High-net-worth families should plan for the possibility of change in the coming years.

How much can I gift without triggering tax in 2025?

Up to $18,000 per recipient per year (annual exclusion). Larger gifts count against your lifetime federal exemption.

What happens if the exemption amount changes in 2026?

Your locked-in gifts and trusts using the higher exemption before the deadline are preserved, but future gifts or bequests may face much lower exclusion limits and higher taxes. The difference could be millions in new taxes owed.

Can I still set up a trust or make large gifts in 2025?

Yes, but the window closes fast and setup must be done thoughtfully, with all IRS paperwork in order. Don’t wait until December—many top law firms get waitlists for November–December deadlines.

For further reading on sophisticated trust structures and the estate planning process, explore our California estate and legacy planning pillar guide.

Mic Drop: The IRS Isn’t Hiding Estate Tax Write-Offs—You Just Need the Right Moves

If you’re a California high-net-worth family, you have a fleeting chance to use this year’s rules to legally shield millions from both federal and potential state estate taxes. Don’t let dated plans or false confidence in “no state tax” be your family’s undoing—schedule a strategy session, update your trusts and LLCs, and keep every dollar within your legacy. As of 2025, bold action beats wishful thinking every time.