Estate Tax Rate California: 2025 HNW Strategies Most Advisors Hide
Most high-net-worth Californians are so fixated on federal headlines, they ignore a local reality: the risk of losing millions to an underestimated estate tax rate in California. If your advisors treat estate planning as a paperwork exercise, you’re on the chopping block for the steepest generational wealth taxes in a decade. Yet, those who implement the right 2025 strategies right now can sidestep disaster—and protect up to $25 million more for their heirs. Here’s exactly how.
Quick Answer: What is the Estate Tax Rate for California in 2025?
For tax year 2025, California does not have a standalone state estate tax as of September 16, 2025. However, high-net-worth individuals with assets above the federal exemption—currently $13.61 million per individual—face the federal estate tax at rates up to 40%. Pending bills in Sacramento, together with sunsetting federal thresholds, mean affluent Californians cannot afford to ignore evolving risks. See our full California estate & legacy planning guide for ongoing developments.
The True 2025 Landscape: How California HNW Families Lose Millions (and Don’t See It Coming)
Even without a state-level estate tax, California HNW and family office clients are staring down two threats in 2025: (1) A possible state estate tax revival and (2) the looming sunsetting of federal exemption levels in 2026. On current law, failing to move fast means planning for a $7 million exemption per person in 2026, not $13.61 million. Example: A biotech founder with a $32M net worth will lose an extra $4.24 million to estate tax if she waits until post-2025 to act.
- 2025 Federal Exemption: $13.61M
- 2026 Exemption drops to ~$7M (projected)
- Federal Estate Tax Rate: Up to 40% (see IRS Estate Tax Guidance)
- PAC (Proposed California Estate Tax): Pending, would layer 10–20% on top for $3.5M+ estates
- CA Estate Tax “back from the dead”—if S.B. 378 or similar passes
Fast Fact: If the state bill passes, a HNW family with $20M estate could pay $2.3M+ in new California state estate tax alone—on top of federal. Families with legacy property, tech exits, or concentrated stock need to act before 2025 year-end to move assets out of taxable estate.
Misconceptions That Cost $8M+: Why Even Seasoned Advisors Miss the Traps
The #1 mistake for California HNW families? Focusing only on federal law and letting the local risk “slide.” Many trust and estate attorneys push boilerplate trusts without aggressive strategies—ignoring advanced moves like intentionally defective grantor trusts (IDGTs), SLATs (Spousal Lifetime Access Trusts), and dynasty trusts that can lock in current exemption rates. Here’s what that oversight looks like in dollars:
- Doctor couple in Atherton, $26M net worth, only standard living trust: faces $6M in avoidable taxes if California estate tax is revived
- LLC-held family real estate lacking non-recourse transfer: triggers both IRS scrutiny and state-level inclusion
- Gift tax confusion: Annual exclusions ($18K per recipient/2025) often underused—missing $252K annual “leakproof” transfer for a family of seven
Pro tip: With the right trusts and pre-2026 gifting, many clients can move $10M+ off balance sheet for little or no tax, thanks to today’s high federal and California gift exclusion alignment.
How to Act: Step-by-Step, Dollar-by-Dollar Moves in 2025
Here’s what high-net-worth families should be executing now to shut the window on legacy-killing estate tax shifts:
- Run a “Wind-Down” Scenario: Calculate impact if California’s estate tax is revived and the federal exemption sunsets. For a $25M estate, the difference is over $4M in additional tax exposure.
- Maximize Lifetime Gifting (now): Combine annual exclusions and spousal splitting. Example: With a $13.61M exemption, a couple moves $27.22M out by 12/31/25; post-sunset, only $14M transferable tax-free.
- Leverage Sophisticated Trusts: Deploy IDGTs, SLATs, and dynasty trusts to shield growth and future appreciation outside your taxable estate. These structures are IRS-approved but underused (see IRS rules).
- Use Family Partnerships and LLCs: Discounted transfers can lock in massive savings on gift tax values. (Example: Marketable securities LP, 25% discount saves $1.7M federal tax per $10M transferred.)
- Convert Insurable Risk: Use irrevocable life insurance trusts (ILITs) to cover projected estate tax—convert future liability to pennies-on-the-dollar cost today.
Why Most Advisors Freeze (And Why That’s Not an Excuse)
Many well-intentioned CPAs and lawyers wait for “final” law before acting. That’s a losing strategy: the IRS and FTB always close loopholes mid-year, leaving families stuck. Real pros act preemptively, using intentionally defective trusts and family LLCs to secure legacy wealth at current rates, regardless of political uncertainty.
Red Flag Alert: If your estate plan hasn’t been updated since 2018, you’re almost certainly exposed to both federal and potential California estate tax. Don’t wait for a signed bill to lose millions.
What Happens When You Ignore the Coming Exemption Cliff?
- Failing to act before the 2026 sunset means $6M less exemption per spouse
- If California passes estate tax, HNW families with $15M+ could lose $1.5–$3M more to combined state/federal rates
- IRS gifting rules (annual, lifetime) remain preemptively available: today’s limits can’t be grandfathered in after the law changes
In our estate tax planning services, strategizing early means capturing today’s high exemptions, freezing real property value growth, and shielding family wealth for generations.
Best Practices for 2025: Protecting Wealth Amid California’s Estate Tax Uncertainty
If you’re a high-net-worth individual or family office, your steps for 2025 should include:
- Updating trusts to lock in current federal exemption levels
- Completing discounted gifts before 12/31/2025
- Reviewing all CA property ownership structures for FTB/IRS scrutiny
- Considering moving income-producing property or business equity out of California before potential law change
- Building liquidity to pay estate tax with life insurance trusts (ILITs)
Be proactive—recency bias ruins legacies. “Wait and see” is a plan for estate shrinkage.
KDA Case Study: HNW Family Shields $8.7M Before Sunset
Profile: Bay Area tech exit, $34M net worth, multiple commercial properties, three heirs.
Problem: Standard living trust only, zero advanced gifting, $10M projected estate tax by 2026 if both federal exemption drops and CA law passes. Family worried about liquidity and forced sale of properties.
Solution by KDA: Deployed IDGTs and SLATs to move $14.8M out of taxable estate in 2025. Transferred commercial assets through discounted FLPs (Family Limited Partnerships) with 27% marketability discounts, saving $2.1M instantly on gift value. Designed custom ILIT covering $10M tax liability at $145K annual premium outlay. Coordinated gifting to charity and heirs for balance. Total tax reduced by $8.7M; services billed at $38,000 (0.11% of net worth). ROI: 22.9x year one.
Frequently Asked Questions: 2025 California Estate Tax Rate
Does California have an estate tax in 2025?
No, but legislation is pending. Prepare as if a 10–20% state estate tax for $3.5M+ estates could activate. See California estate tax guide.
How much can my spouse and I transfer free of estate tax in 2025?
$27.22M using full combined federal exemption, but only if you take action in 2025. After that, exemption drops to ~$14M per couple unless laws extend current limits. See IRS rules.
What is the #1 estate planning mistake HNW Californians make?
Waiting to see what Congress or Sacramento will do. Most strategies require months to implement and can’t be backdated after the fact. Lock in today’s exemption with advanced trusts and gifting ASAP.
What kind of assets can I transfer out of my estate for tax purposes?
Almost any appreciating assets—real estate, family business equity, marketable securities, crypto, closely-held stock—can be moved through trusts and family partnerships, often at a discount. Consult an advanced estate strategist for tailored options.
KDA Pro Tip
Capture today’s high federal gift/estate exemption before it sunsets. Once it’s gone, future value growth is back “in” the taxable estate for good.
Book Your Legacy Wealth Strategy Session
Worried about timing, compliance, or leaving millions in IRS/FTB hands? Secure your wealth and legacy with a tailored estate tax review from KDA’s advanced planners. Our clients routinely shield $7M–$15M in extra estate tax—all fully compliant, with minimal risk. Book your confidential estate planning session now—before the window closes and rates rise.
