California’s Estate Tax Rate in 2025: The Untold Strategies High-Net-Worth Clients Aren’t Hearing

Here’s a fact most affluent Californians quietly ignore: In 2025, the interplay between federal and California estate tax rules could shift over $1 million in legacy wealth from your heirs to the government—unless your strategy is flawless. Too many high-net-worth families believe that California’s lack of a traditional estate tax means they’re safe. The real risk is hidden in federal thresholds, portability oversights, and the upcoming sunset of the federal exemption. The right moves now can spell the difference between a generational windfall and a tax-fueled trainwreck in probate court.

This article will arm you—private business owner, real estate portfolio holder, or legacy-minded investor—with tested, IRS-backed strategies to secure wealth from estate tax erosion, using the estate tax rate in California as the anchor for every perspective.

This summary is current as of 9/17/2025. Estate tax and exemption law changes are possible. Always confirm with your private wealth advisor or the IRS for the latest updates before implementing major strategies.

Quick Answer: What’s the Real Estate Tax Rate in California for 2025?

There’s still no standalone California estate tax in 2025. But high-net-worth individuals with estates over the federal exemption (projected at $7,500,000 single / $15,000,000 married) face a top federal estate tax rate of 40% on excess amounts. Portability cracks, poorly drafted trusts, and misaligned asset titles in California routinely spark multi-million-dollar surprises. Expect possible federal exemption reductions for 2026—act now.

Deconstructing the 2025 Estate Tax Math: Who Is Actually at Risk?

The estate tax rate in California only applies at the federal level, but its effects cascade through California probate. Here’s how it plays out:

• Federal estate tax for 2025: 40% on taxable estate exceeding federal exemption
• California estate tax: No state inheritance/estate tax
• Thresholds: ~$7.5M individual / ~$15M married, but lower post-2025 unless law changes
• Assets counted: Real property, closely held businesses, investment accounts, life insurance (sometimes), and more

Example scenario: Marilyn, a retired Newport Beach property developer, owns $4M in real estate, $5M in market investments, and two $3M life insurance policies—totaling $15M.

• Without strategic planning, over $7.5M would be exposed above her single exemption, triggering a tax bill of ~$3M overnight.
• With proper planning through exempt trusts, gifting, or business entity shifts, the exposure could be zero.

Untapped Strategies: Outmaneuver the Estate Tax Rate in California

Here’s how KDA’s estate tax planning services help high-net-worth families cut taxes dramatically:

1. Use the Lifetime Gift Exclusion Aggressively (Pre-Sunset)

In 2025, each person can gift up to the full federal exemption ($7.5M) tax-free over their lifetime. For married couples, that’s $15M. But starting 2026, these numbers may revert to ~$6M per person (adjusted for inflation). Clients giving large property, partnership interests, or family business shares now can lock in today’s high limits.

• Strategy: Gift $3.5M real estate to children in 2025; save up to $1.4M in future tax versus waiting until lower thresholds kick in.
• IRS reference: IRS Gift Tax Guidance

2. Deploy Intentionally Defective Grantor Trusts (IDGTs)

IDGT structures let wealth grow outside your estate while you pay the income tax (lowering taxable estate). For California HNWIs, using IDGTs with real estate, private equity, or market portfolios can shelter millions. Example: Gift minority interest in a $5M family LLC to an IDGT; pass $2M into heirs’ hands, generate $800K in long-term tax savings through valuation discounts and growth outside of estate.

• IRS reference: Publication 559: Survivors, Executors, and Administrators

3. Leverage Life Insurance trusts (ILITs) to Cover Estate Tax Bites

Life insurance proceeds are federally taxable if the policy is owned by the estate holder. Moving policies into ILITs eliminates this exposure. Case: A $4M life insurance death benefit, when properly titled in an ILIT, escapes $1.6M in estate taxes and is delivered intact to beneficiaries. This strategy is vital for high-liquidity real estate owners and business founders in California.

4. Portability Is Not Automatic—Lock It Down

Federal tax code allows surviving spouses to “port” whatever exemption the deceased didn’t use—but you must file IRS Form 706 on time. In 2025, failing to file this within 9 months leaves married estates open to double taxation after first spouse’s death, shrinking generational wealth by 20–40%.

• IRS Reference: Form 706 guidance

5. Don’t Rely on Prop 13 for Estate Strategy

Prop 13 controls California property tax assessments, not estate taxes. Passing highly appreciated real estate to heirs can still generate a step-up in federal basis (helpful for capital gains reduction), but offers no protection from federal estate tax.

KDA Case Study: HNW Real Estate Investor Saves $3.1M with Layered Trust Strategy

Client: “Sam,” Bay Area entrepreneur with $18M in tech company shares, and $7M in California investment properties.
Persona: High-Net-Worth Individual, Estate/Legacy Planning
Problem: Facing post-2025 federal exemption drop, kids risked billions in stock/real estate transfer taxes.
KDA Solution: Sam transferred $7M of property into an IDGT, layered in an ILIT for $4M life insurance, and made $1M in strategic lifetime gifts to family LLC. KDA filed portability paperwork and re-titled California real estate.
Result: Estimated $3.1M in net estate tax savings after liquidity events, with total fees of $17,800.
ROI: Over 17x first-year ROI, excluding ongoing legacy tax benefits.

What Triggers Federal Estate Tax for Californians?

Estate tax risk is triggered when combined gross estate (including all property, financial accounts, business interests, life insurance, and certain trusts) exceeds the federal exemption. California does not tax inheritances, but probate and property transfer rules can complicate federal calculations. Trusts, gifting, and entity structuring (LLCs, S Corps) provide significant levers for reducing risk, as seen in our complete estate tax planning guide.

Why Most High-Net-Worth Californians Still Get Burned by Estate Taxes

Red Flag Alert: The biggest mistakes we see every year—including in Silicon Valley and Orange County—are:

• Missing the 9-month Form 706 deadline; losing exemption portability
• Holding life insurance outside a trust
• Failing to update asset titles and beneficiaries after major life events or law changes
• Treating Prop 13 property tax caps as estate tax protection (they aren’t)
• Postponing action “until next year” and falling into lower exemption brackets after law sunsets

This is usually due to advisor turnover, fragmented asset oversight, or “I’ll deal with it when I’m older” thinking. It can cost millions in avoidable taxes and rupture family legacies.

Pro Tip: The Forgotten Portability Election

Many surviving spouses in California inadvertently overpay, because the IRS requires a timely Form 706 (see IRS guidance). Late or missing filings can erase up to $6M in unused exemptions—enough to push a previously safe family well into taxable territory with a 40% haircut.

Frequently Asked Questions About the Estate Tax Rate in California

Does California Have Its Own Estate or Inheritance Tax?

No. California repealed its separate estate tax years ago. Only the federal estate tax applies for 2025, with the top rate at 40%.

What’s Included in “Estate” for Federal Purposes?

All property: real estate, investments, businesses, retirement accounts, cash, and sometimes life insurance. It also includes certain trust assets and gifts made within three years of death.

What Are Some Non-Obvious Ways to Lower Estate Tax Exposure?

Act before the 2026 exemption drop. Use trusts and gifts to shift appreciating assets now. Title life insurance properly. Use valuation discounts on closely held businesses. Ensure every movable piece is coordinated with final probate and beneficiary strategies. For details on advanced options, reference our in-depth estate planning guide.

Myth Bust: “California’s No Estate Tax, So I’m Safe”

This myth is just wrong. California residents with assets above the federal exemption are exposed to 40%+ in estate taxes past threshold. Failing to act now means the IRS could become your largest heir.

Fast Tax Fact: IRS Filing Deadlines Matter

If the executor fails to file Form 706 within nine months of death (with possible six-month extension), survivors lose access to unused exemptions. That can instantly inflate the overall tax bill by $1-3M for many high-net-worth California families. See IRS Form 706 instructions.

Pro Tip: Time gifts before the 2026 sunset. Properly using today’s generous exemption could shelter millions—while tomorrow’s law change could remove the opportunity overnight.

Will There Ever Be a California State Estate Tax Again?

As of September 2025, multiple state legislative efforts have explored new estate/inheritance tax options, but none have passed. Always revisit this subject annually at tax time—it can shift quickly. If new state rules emerge, advanced trust and gifting strategies will become even more critical for preserving generational wealth.

What If My Estate Grows Past the Exemption Because of Investment Gains?

Asset appreciation—especially Bay Area real estate or tech company shares—can push estates above the exemption years after the original strategy was set. Annual reviews with your strategist will prevent “bracket creep” from blind-siding heirs.

Next Moves Every High-Net-Worth Californian Should Make

• Schedule full asset review now, before the 2025 law sunsets
• Update legal documents (trusts, power of attorney, health care directives)
• File portability forms on time—do not risk losing the second exemption!
• Coordinate with wealth/estate attorney to stress test your entity and trust skills
• Have a professional quantify potential tax liability at varied exemption levels

Book Your Wealth Legacy Strategy Session

If you’re holding California real estate, a business, or investment assets and want to shield your legacy from sweeping estate tax changes, this is your window. Book a private session with KDA’s legacy team to map a bulletproof estate plan and get a clear number on your projected exposure—down to the dollar. Click here to book your legacy planning session now.