California Estate Tax Realities: How High-Net-Worth Families Can Preserve Wealth in 2025 and Beyond

Most affluent Californians believe estate taxes are a relic of the past—but a single planning mistake could trigger millions in unnecessary federal tax, even though California has no estate tax of its own. With federal exemption limits set to plummet after 2025, ignoring this shift could devastate your family’s legacy. For those with $10M–$100M (or more) in net worth, proper planning isn’t optional—it’s the cost of protecting everything you’ve built.

Quick Answer: California currently has no state-level estate tax, but the federal exemption ($13.61M per person for 2025) is scheduled to drop to about $7M on January 1, 2026. High-net-worth families need to act before then to shield generational wealth from a 40% federal estate tax. Key tools include trusts, gifting, and advanced discounting strategies. (See IRS estate tax overview)

What High-Net-Worth Families Get Wrong About Estate Tax in California

There’s a pervasive assumption among California’s elite: “We don’t have estate tax issues because our state repealed its tax in 2005.” But that’s a dangerous half-truth. While California estate tax was phased out, the federal government still claims 40% of anything above the federal exemption (see IRS Estate Tax).

• For 2025, the federal exemption is $13.61M per individual—$27.22M for married couples.
• Starting in 2026, that drops to about $7M per person (adjusted for inflation), more than halving the “safe zone.”
• A $30M net worth family could face $9M or more in estate tax with poor planning. This isn’t hypothetical—hundreds of KDA clients face this risk right now.

Red Flag Alert: The sunset of the Tax Cuts and Jobs Act provisions is not a drill. Delaying planning until 2026 means you’ll lose the ability to lock in current exemption amounts forever.

Common Trap: The “California Exemption” Myth

Even major private banks get this wrong—advisors often reassure families that California has no estate tax, ignoring the much more severe federal risk. The result: assets like San Francisco homes, venture equity, or real estate portfolios worth $15M+ are caught in the crossfire when an owner unexpectedly dies.

Strategic Tools to Navigate the 2025 Estate Tax Cliff

Every high-net-worth portfolio is unique, but the urgent need is the same: leverage today’s much-higher federal exemption before it vanishes. Here’s what KDA’s advanced planners are deploying now:

• SLATs (Spousal Lifetime Access Trusts): Shield up to $13.61M now, while still allowing indirect access for your spouse. Used by tech founders, real estate moguls, and family offices across the Bay Area.
• GST Trusts (Generation-Skipping): Move wealth beyond your children—lock in GST exemption and avoid “double taxation” for grandkids.
• GRATs (Grantor Retained Annuity Trusts): Ideal for volatile assets or down rounds—transfer appreciation with minimal gift taxes.
• Discount Planning (FLPs, LLCs): Formalize family real estate or business entities to use “valuation discounts”—sending $24M in assets for $17M of reported value for IRS purposes.
• Lifetime Gifting: Systematically remove appreciation from your estate, using annual $18,000 exclusion and strategic large gifts using the full exemption (see IRS Gift Tax).

Pro Tip: Safeguard your assets by working with a strategist who understands both the legal nuance and the IRS audit landscape. Every estate plan KDA drafts includes stress testing for real-world audit scenarios.

What’s at Stake in 2025—A Numeric Example

Let’s say you own $26M in mixed assets—Malibu real estate, Silicon Valley shares, and a $2M art collection. If you die in 2025, your family pays zero estate tax with proper planning. If you wait until 2026 without action? Your heirs could hand $7.6M to the IRS the moment that exemption falls.

Key IRS Rules and Publications to Know

Serious estate planning demands knowing the regulations. For this year and next:

• IRS Estate Tax Overview (2025 rates and rules)
• IRS Gift Tax Page (annual and lifetime exclusions)
• Publication 559 (for executors/trustees)
• IRS Form 706 (Estate Tax Return Guidance)

Don’t rely on piecemeal Google advice. The tax code changes every year—2026’s sunset is the biggest shakeup in a generation.

Pillar Resource for In-Depth Strategies

KDA’s estate experts have compiled full scenarios, entity charts, and risk matrices—the California Guide to Estate & Legacy Tax Planning is essential reading for anyone with $8M+ in assets.

Critical Deadlines and Traps for High Earners

Time is your enemy. Here’s what you must do before December 31, 2025:

• Draft, execute, and fund any “use-it-or-lose-it” trusts NOW—not December 15th. Legal bottlenecks and funding delays have cost KDA clients millions before.
• Update all powers of attorney, trust paperwork, and corporate documents. Don’t assume your 2018 estate plan is still valid post-sunset.
• Identify orphaned out-of-state assets, old IRAs, or privately held business shares—non-integrated plans guarantee IRS challenges and tax leakage on death.

Myth Bust: It is not enough to “wait and see what politicians do”—once the law sunsets, the IRS will enforce the lower exemption automatically.

What If You Miss the 2025 Estate Tax Deadline?

Missing the window doesn’t end the world—but it very likely guarantees a multi-million dollar bill. Options post-sunset are limited:

• Charitable trusts to redirect taxable portions (but often lock up access to principal)
• Insurance-funded estate plans—less efficient, more expensive for older clients
• Emergency gifting, but with significant loss of prior leverage and discounts

It’s always possible to reduce exposure, but the unique 2025 window never repeats. Families at $12M–$40M who act promptly will lock in generational tax savings of $6M–$16M.

Internal and Pillar Links: Premium Estate Planning Services

Before you assume you’re protected, audit your current plan. KDA offers premium estate tax planning services for California’s high-net-worth. Unbiased second opinions, strategic execution, and full risk audits.

For deep dives, estate structuring checklists, and audit defense tactics, make sure to reference our complete California estate guide as part of your annual review.

KDA Case Study: Legacy Secured for a Bay Area Family

Persona: High-net-worth family, $22M net worth (tech, business, and real estate); two children; complex California/Delaware trust structure.

Problem: Their older estate plan ignored new federal gifting possibilities. Review revealed $8M of soon-to-be-taxed assets (scheduled for $3.2M tax if held to 2026 sunset), with some property held outside of any trust.

• What KDA Did:
  • Implemented coordinated SLAT/GRAT strategy, formalized LLC discounts, preserved $13M exemption per spouse for 2025, and retitled all real estate into revocable trusts to ensure probate and step-up protection.
  • Utilized annual exclusion gifts to jump-start wealth transfer into next generation—zeroed out exposure before the sunset.
• Result: Avoided $3.2M in forced estate tax, paid $44K in advisory, recorded 72:1 first-year ROI, and locked in family control for two generations.

In short: Proper California estate tax navigation isn’t just academic—done right, it keeps tens of millions in the family, unchallenged by IRS or auditors (see Form 706 guidance).

Common Questions: California Estate Tax in 2025

Will California reinstate a state-level estate tax?

There’s periodic discussion in Sacramento, but as of August 12, 2025, no bill has passed. If you have $15M+ to protect, you can’t afford to wait on lawmakers.

What’s the “sunset” and why does it matter so much?

The “sunset” refers to the scheduled drop in the federal estate tax exemption from $13.61M to about $7M, applying automatically on January 1, 2026—unless Congress acts. Most analysts project more restrictive rules ahead. (See IRS Estate Tax reference)

Does gifting to children avoid all estate tax?

No—gifting can reduce your taxable estate, but there are strict annual and lifetime limits. Overstepping triggers gift tax filings and possible audits. To maximize benefits, formalize your plan with professional advice. (See IRS Gift Tax.)

Top Mistakes California Families Make With Estate Tax Planning

• Assuming state estate tax is “gone forever”—without monitoring DC changes
• Waiting until December to update trusts or fund gifts (delays, asset appraisal issues)
• Failing to revisit trust structures after IRS ruling changes or family events
• Overlooking out-of-state or international assets (which may have local estate tax exposure)
• Failing to use legal valuation discounts for closely held assets

Bottom Line: If you have $8M+, annual estate plan reviews are non-optional, and planning today is worth millions tomorrow.

Quick Takeaways for HNW Families

• 2025 is a “never again” window for wealthy Californians to lock in current high estate tax exemptions. Waiting costs millions.
• Combining advanced trusts with discounting, gifting, and entity planning is the only reliable strategy to outmaneuver the IRS in 2026 and beyond.
• KDA structures these moves for some of California’s largest estates—schedule a diagnostic now or risk being stuck with post-sunset penalties.

FAQ: California Estate Tax Essentials

Can I avoid estate taxes by moving assets to Nevada or another state?

No. Federal estate tax is based on citizenship and residency—not just asset location. Out-of-state trusts or LLCs help, but only as part of a fully compliant, IRS-reviewed plan.

Does my trust protect my estate from all taxes?

Not automatically. Trusts are only as strong as their structure, execution, and periodic updates. IRS audits routinely challenge outdated or informal trusts (see IRS Form 706 guidance).

This information is current as of 8/12/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.

Book Your Legacy Tax Blueprint Session

Secure your family’s legacy with a custom estate tax reduction plan from California’s most trusted advisory team. If your wealth exceeds $8M, don’t risk a 40% IRS claim on your life’s work. Book a strategy session today and lock in your generational exemption before the door closes.