California Estate Tax 2026

OBBBA Impact on 2026 Estate Tax

The One Big Beautiful Budget Act (OBBBA) permanently extended the higher estate tax exemption that was set to expire at the end of 2025. Without the OBBBA, the exemption would have reverted to approximately $7 million per person — cutting the exemption roughly in half and exposing millions of additional estates to federal estate tax. The OBBBA's permanent extension of the higher exemption is one of the most significant estate planning developments in years.

Federal Estate Tax Rates & Exemptions

The federal estate tax applies to the taxable estate (gross estate minus deductions) above the exemption amount. The top estate tax rate is 40%. For 2025, the exemption is $13.99 million per person ($27.98 million for married couples using portability). The exemption is adjusted annually for inflation — the 2026 exemption will be slightly higher. The estate tax is paid by the estate before distribution to beneficiaries.

California Estate Tax

California does not have a state estate tax. This is a significant advantage for California residents with large estates — they only owe federal estate tax, not a separate California estate tax. Some states (Massachusetts, Oregon, Washington, and others) have state estate taxes with much lower exemptions than the federal exemption. California residents who own property in those states may owe those states' estate taxes on the property located there.

Who Owes Federal Estate Tax?

With the permanent $13.99 million exemption, only very large estates owe federal estate tax. For a married couple with a combined exemption of $27.98 million, the estate tax is relevant only for estates above that threshold. However, the estate tax can still be a planning concern for: business owners with large closely-held business interests, real estate investors with large portfolios, and individuals with significant life insurance proceeds (which are included in the taxable estate if the insured owns the policy).

Portability of Exemption

Portability allows a surviving spouse to use the deceased spouse's unused exemption. If the first spouse to die has a $13.99 million exemption and only uses $3 million of it, the surviving spouse can "port" the remaining $10.99 million and add it to their own $13.99 million exemption — for a total of $24.98 million. Portability must be elected by filing an estate tax return (Form 706) within 9 months of death (with a 6-month extension available), even if no estate tax is owed. KDA recommends filing Form 706 to elect portability for all married clients, regardless of estate size.

Estate Tax Planning Strategies

For estates that may exceed the exemption, KDA coordinates with estate planning attorneys on: (1) Irrevocable Life Insurance Trusts (ILITs) — removes life insurance proceeds from the taxable estate. (2) Grantor Retained Annuity Trusts (GRATs) — transfers future appreciation out of the estate with minimal gift tax. (3) Charitable giving — charitable deductions reduce the taxable estate. (4) Annual gifting — the $18,000 annual gift tax exclusion ($36,000 for married couples) allows tax-free transfers each year. (5) Spousal Lifetime Access Trusts (SLATs) — irrevocable trusts that remove assets from the estate while allowing the spouse to benefit.