Estate Tax Rate California 2025: What High-Net-Worth Families Need to Know (and Do)

Every year, high-net-worth Californians hear two persistent myths: that there’s no estate tax in California, and that federal estate taxes only hit the super-rich. Both are dangerous, and believing them can cost your heirs millions. With shifting IRS rules and Sacramento’s appetite for tax reform, those who think they’re safe are usually the ones blindsided by probate delays, punitive tax bills, and irreversible family disagreements.

Quick Answer: For 2025, estate tax rate California is zero—there’s no state-level estate tax today—but the federal exemption sits at $13.61 million per person, with a 40% federal estate tax above that. The exemption is scheduled to shrink dramatically after 2025, threatening even mid-eight-figure families. Without advance planning, you risk losing over $4 million per $10 million above the threshold. Proactive strategies can legally shelter assets, cut exposure, and keep family wealth intact.

Why Estate Tax Assumptions Cost California Families Millions

The most common blind spot among high-net-worth Californians is assuming that ‘no state estate tax’ means they’ll dodge the IRS altogether. Not true. Compared to New York or Oregon, there’s no California-specific estate tax, but the federal estate tax remains a potent threat—and may hit harder in coming years.

Even though the estate tax rate California is currently zero, that doesn’t mean wealthy families are off the hook. California residents are fully subject to the federal estate tax, which carries a flat 40% rate on taxable assets above the federal exemption. If Sacramento were to introduce its own estate tax—similar to Oregon’s 10–16% tiered structure—the combined hit could easily exceed 50% on certain estates. High-net-worth families need to plan as if the state may join the game in the future.

Current law pegs the federal exemption at $13.61 million per individual ($27.22 million for married couples) in 2025. But the Tax Cuts and Jobs Act provisions expire after 2025, likely dropping the exemption to about $7 million per person starting 2026 unless Congress acts. For an Orange County family with $25 million in net worth, that means up to $9.22 million could become taxable—triggering $3.68 million in IRS estate tax overnight.

• Federal estate tax rate for 2025: Flat 40% on taxable estates above exemption
• California estate tax rate: 0% (no state-level estate tax in 2025)
• Gift tax: Lifetime federal exemption matches estate tax exemption; gifts above annual exclusion count against it

For details and thresholds, review IRS Publication 559.

How the Looming Federal Exemption Drop Will Reshape Inheritance in California

Many families are sleepwalking into estate tax disaster. In 2025, the exemption looks generous. By January 2026, however, most multi-generational estates and successful business owners will feel the squeeze. Here’s what leading strategists are doing in 2025:

The Family That Waited… and Lost

Meet the “Martinez Family” of Palo Alto. In 2025, their estate, valued at $19 million, sits comfortably below the $27.22 million couple exemption. But when the exemption drops to $14 million (combined) post-2025, suddenly $5 million is exposed at 40%—a $2 million IRS hit. Had they begun gifting and set up irrevocable trusts this year, they could have transferred those assets out of their estate, sidestepping the future tax entirely.

Top Strategies for Reducing Estate Taxes in 2025

• Gifting up to $18,000 per beneficiary per year—use it or lose it
• Grantor Retained Annuity Trusts (GRATs) to shift future appreciation out of your name
• Irrevocable Life Insurance Trusts to cover anticipated liability without inflating estate value
• Family Limited Partnerships for shifting business interests with valuation discounts

To safeguard your estate and legacy, you need active, not reactive, legal and tax work now. Our estate planning advisory services are built for these transitions—don’t wait until the exemption cliff hits.

Common Mistake: Misunderstanding Step-Up in Basis

Another trap for California families: assuming all inherited assets get a “step up” in basis. While most do, some improperly structured trusts (or non-compliant gifting) can forfeit this protection, leading to double taxation—once via estate, again through capital gains. Example: a $3 million rental property with $500k cost basis, gifted instead of inherited, saddles heirs with $2.5 million in taxable gain. This is why timing your moves, and how you transfer assets, matters just as much as the assets themselves.

For further reading on step-up and gifting rules, see IRS Publication 551.

Pro Tip: Start annual exclusion gifts and consider irrevocable trusts before December 2025 to lock in today’s bigger exemption. Delay could cost millions in avoidable federal estate tax.

Advanced Estate Planning Tactics for High-Net-Worth Californians

The savviest families combine multiple tools to create flexible, defensive, and tax-efficient estate plans. Here’s what separates successful legacy builders from those who leave a mess:

• Using Spousal Lifetime Access Trusts (SLATs) to move assets out of estate but still keep indirect access
• Stacking 529 education savings accounts for multiple heirs under the increased 5-year lump sum rule
• Qualified Personal Residence Trusts for high-value homes in expensive coastal regions
• Integrating charitable remainder trusts to eliminate estate tax on appreciated investments

Linking these, with tax-court-tested documentation, can reduce effective estate tax to near zero—even for estates well above $20 million.

Why “No California Estate Tax” Isn’t a Green Light

Some advisors say, “Don’t worry; California has no estate tax.” That advice is incomplete—federal changes, potential state-level reforms, and IRS scrutiny over multi-state asset structures demand vigilance. Sacramento could resurrect state-level estate or inheritance taxes as budget pressures intensify over the next decade. Those exposed with simply-drafted wills or outdated trusts are at highest risk. Review our comprehensive guide to California estate and legacy planning for deeper explanations and power-user tactics.

KDA Case Study: HNW Family Office Dodges a $5.2M Estate Tax Trap

The “Cheng Family Office” managed $42 million in stocks, real estate, and closely held business interests in Los Angeles. Their old trust—drafted before 2018—assumed exemptions would always rise. When reviewing their structure, KDA identified an impending $13.4 million in exposed assets if the exemption dropped in 2026, subjecting heirs to a $5.36 million potential IRS claim.

Our specialists reengineered their plan, setting up a combination of SLATs, a GRAT for business shares, and annual gifting programs for each grandchild. Legal expenses totaled $32,000 for strategy and documentation—significant, but dwarfed by the $5,360,000 shielded from federal estate tax. The first-year ROI was over 160x, and the structure is designed for further savings if California ever institutes its own estate tax regime.

Frequently Asked Estate Tax Questions for California High-Net-Worth Families

Who Actually Pays Federal Estate Tax in California?

In 2025, only estates above $13.61M per individual pay federal estate tax. But with 2026 scheduled exemption drops, far more families will be on the hook unless urgent action is taken.

Does the Step-Up in Basis Still Apply to Inherited Real Estate?

Yes, for direct inheritance. If you gift property during your life, the new owner keeps your original basis, which can create large capital gains tax for them at sale. See IRS Publication 551.

How Can I Lock In the Higher Exemption Before It’s Gone?

Use lifetime gifting strategies, grantor trusts, and other tools to remove wealth from your estate. The IRS has confirmed that gifts made under the higher exemption (before 2026) won’t be “clawed back” if allowed by law after the drop.

Is There Any Chance California Adds an Estate Tax?

Several legislative attempts have been made, and budget shortfalls could fuel new proposals. The best protection is to future-proof your plan—don’t assume past rules guarantee future savings.

Biggest Estate Tax Red Flag for 2025: Complacency

By far, the most common mistake KDA sees is families waiting for Congress to “fix” the sunset. “Congress won’t let this happen,” they assume. But the 2012 “cliff” only resolved at the last possible hour, and scores of families paid dearly for inaction. Act as if the lower exemption is coming—if you’re wrong, you still win by gifting, moving assets, or locking in favorable rules today.

“The IRS isn’t hiding these estate tax rules—you just weren’t shown how to use them before hard deadlines hit.”.

Book Your Estate Tax Planning Session

If your California family’s net worth exceeds $7 million (or you want to keep it that way), now is the time for a private strategy session. Our team has prevented $5M+ IRS bills for clients by redesigning outdated plans at the right moment. Click here to book your high-impact estate tax consultation now.