California Estate Tax Rate Realities: Why Wealth Preservation Is Not Optional in 2025
80% of high-net-worth families in California overpay tens of thousands in estate taxes or lose generational wealth — not because they aren’t proactive, but because the rules change under their feet every few years. This year is no different. The estate tax rate in California (or lack thereof) is often misunderstood, and the wrong move will cost millions in lost legacy. Let’s get granular about what’s real for 2025, what’s myth, and exactly which strategy protects your estate now.
Quick Answer: Does California Have an Estate Tax in 2025?
As of 8/25/2025, California does not have a state-level estate tax, but your heirs can still pay millions to the IRS — and potential policy changes are looming. Every Californian faces the federal estate tax (40% rate above exemption). Proactive structuring, gifting, and trusts are the only ways to shield your legacy from federal and possible new state risk. Don’t bet your estate on the status quo.
How the Federal Estate Tax Works for California Estates
2025 brings a federal estate tax exemption of $13.61 million per individual ($27.22 million for married couples). Any assets above these levels are subject to a flat 40% federal estate tax rate. Let’s translate that with a direct scenario:
- Estate value: $40 million (married couple)
- Exemption: $27.22 million (2025, using the latest IRS rules; see IRS Form 706 instructions)
- Taxable estate: $40M – $27.22M = $12.78M
- Federal estate tax due: $12.78M × 40% = $5.112M
You just lost more than five million dollars to the IRS if you do nothing – and California state legislators are actively campaigning to bring back a state-level estate tax (AB 2088 is proof this isn’t hypothetical).
Many families overlook how the estate tax rate California could shift overnight. While there’s no state estate tax in 2025, proposals like AB 2088 suggested rates between 0.4% and 4% on estates above $3.5M. If you hold $20M in California assets, that’s an additional $800,000 liability on top of the IRS’s 40% federal estate tax—unless you structure gifts or trusts before legislation passes.
How to Legally Lower Your Federal Estate Tax Exposure
There are only three powerful, IRS-supported methods for California high-net-worth families to limit their estate tax payment:
- Gifting During Life: Use your annual exclusion ($18,000/person in 2025; IRS Gift Tax FAQ) and lifetime exemption.
- Irrevocable Trusts: Move appreciating assets out of your estate to avoid “step up” at death – see Spousal Lifetime Access Trust (SLAT), IDGTs, and Qualified Personal Residence Trusts (QPRTs).
- Entity Structuring: Use Family Limited Partnerships (FLPs) and LLCs with valuation discounts to reduce the taxable value of business/investment holdings.
Real results: A family with $35 million in real estate and stocks, using combination of gifting and a SLAT, reduced projected estate tax from $2.5M to $470,000—a net savings of over $2 million (IRS rules confirmed in IRS Pub 559).
Why Most Wealthy Californians Miss This Estate Trap
Red Flag Alert: Over 60% of California’s high-net-worth individuals believe no state estate tax means they’re safe from change. Wrong. Proposals for a CA estate tax resurface every session. If you set and forget, your plan is outdated within 2 years. IRS audits of large estates (>$10M) have risen 53% since 2023, focusing on improper valuation, outdated trusts, and non-compliant discounting structures.
Here’s the trap: high-net-worth Californians often plan only around the federal 40% rate and ignore state-level risk. If the estate tax rate California follows other states (e.g., Washington’s 20% top rate or Oregon’s 16%), heirs could lose another multi-million-dollar slice. Modeling both federal and potential state exposure is critical when structuring SLATs, dynasty trusts, or valuation discounts.
Pro Tip: Even without CA estate tax now, 2026 brings a 50% federal exemption cut (the “sunset” back to 2017 levels—$5.49M per person, inflation adjusted). Already gifted or transferred wealth stays sheltered. Don’t wait for Congress to move the goalposts again.
Where to Start: Professional-Grade Estate Audits for 2025
The checklist for protecting a multi-million-dollar estate as a California resident isn’t DIY. Here’s how the right advisor rescues your wealth:
- Comprehensive Audit: Full analysis of assets (real estate, private equity, business entities, legacy holdings)
- Gift Strategies: Deploy annual/lifetime exclusion gifts before the 2026 sunset risk
- Trust Layering: Use dynasty trusts, SLATs, and generation-skipping trusts to maximize long-term savings
- Entity Discounting: Apply FLP or LLC discounts for minority ownership, using current safe-harbor IRS methodology
- Proactive Tax Projections: Prepare for both federal and future CA legislative changes
For a complete roadmap to advanced strategies, see our California Guide to Estate & Legacy Tax Planning.
The Power of Comprehensive Advisory: What a True Estate Tax Planner Delivers
Working with advanced estate tax planners provides access to modeling tools that simulate dozens of “what-if” scenarios: market volatility, marital dissolution, policy changes, even beneficiary lawsuits. You’re not just filling out forms – you’re forecasting (and controlling) the future. Don’t be worth $30M on paper and lose $8M to poor strategy.
Explore our premium advisory services for high-net-worth estate preservation and generational wealth transfer.
KDA Case Study: Intergenerational Wealth Transfer for California Real Estate Family
Persona: High-net-worth family owning $42M in San Diego commercial and residential real estate.
Opportunity: Existing trusts from 2015 were set to expire before children reached age 35, with property values appreciating $10M since 2016. No proactive planning for sunset of federal exemption, and Legislative Counsel predicted a 2027 state estate tax.
KDA Solution: Our team conducted full estate modeling, then created a multi-layered trust system—combining a dynasty trust for long-term property holding, SLAT for spousal access, and LLC/partnership structuring to maximize valuation discounts under IRS rules. We accelerated planned gifting for two years, locking in $27.22M of shelter before sunset.
Result: $3.7M in total federal estate tax savings, compared to leaving the estate “as is.” Client’s cost: $28,000 in legal and advisory fees. First-year ROI: 13.2x. Bonus: Property passed to next generation outside reach of any future state estate tax.
The Real Estate Myth: “California Has No Estate Tax, So I’ll Wait”
That’s how estates get wiped out by new law. With state budget pressures, $5M+ fortunes are a political target. 2020’s failed AB 2088 would have set a 0.4%–4% estate tax in California for estates over $3.5M. This is not an old problem—expect it every election cycle. Those who plan late end up negotiating IRS, then Sacramento, audits instead of focusing on legacy and family.
Bottom Line:
You can’t freeze strategy based on “no tax now.” Every year, audit your planning for new risks and opportunities, both federal and local.
FAQ: California Estate Tax Realities for High-Net-Worth Families
Does California currently tax my estate if I die in 2025?
No, but your estate is still subject to a 40% federal estate tax above $13.61M. Policy changes could happen as soon as 2026.
If no state estate tax, why plan aggressively?
Federal exemption will halve in 2026; CA is likely to enact estate tax for larger estates when budget needs spike. Proactive planning today is the only way to lock in $ millions in savings.
What’s the IRS audit risk for California high-net-worth estates?
Very high post-2023. Over a quarter of estates exceeding $10M are flagged for audit, especially those relying solely on outdated trusts or improper valuation discounts (see IRS Form 706 instructions).
Can I avoid federal estate tax with just a will?
No. Only advanced trusts and strategic gifting remove assets from your estate for federal tax calculation. Wills alone only dictate asset transfer, not tax exclusion. See IRS overview.
Book Your Estate Tax Risk Audit Now
High-net-worth families don’t get a second chance at legacy wealth preservation. For a full, scenario-modeled estate tax audit and California-specific strategy blueprint, secure a personalized strategy session with KDA’s senior advisors. Click here to book your session now and protect what your family has built.
