Estate Tax Rate California: Untangling Wealth Transfer and Strategic Planning in 2025
Too many affluent Californians believe that state estate taxes aren’t a threat—after all, California is known for not imposing a state-level estate tax. But that’s a dangerous misconception, especially as federal laws shift, portability rules reveal unexpected loopholes, and other states move to change their own estate tax legislation. Wealth that took a lifetime to build can be eroded by strategic missteps, bad assumptions, or pure inertia.
Quick Answer: For the 2025 tax year, California does not impose its own state-level estate tax. However, federal estate tax of 40% applies to taxable estates exceeding $13.61 million for individuals (or $27.22 million for married couples), and new federal estate tax exemption limits and sunset provisions mean that more California families will be exposed to tax liability starting in 2026. Proper planning in 2025 is essential to preserve your legacy and keep more of what you’ve earned.
The real issue isn’t whether California has a standalone levy—it’s how the federal system functions as the de facto estate tax rate California families face. At 40% above the exemption, that rate is punitive when layered on large real estate holdings or concentrated stock. Locking in today’s exemption with trust-based transfers can reduce exposure by tens of millions.
The Real Risks: Why California’s “No Estate Tax” Isn’t the Whole Story
The biggest risk for high-net-worth (“HNW”) Californians isn’t an existing state estate tax—it’s the changing federal landscape, IRS scrutiny, and the common missteps that result in excessive tax payments. Most families overlook the convergence of looming exemption sunsetting, portability traps, gift tax mistakes, and mismanagement of trusts. The result can be shocking: millions lost to taxes and administrative costs.
Consider our comprehensive California estate and legacy tax planning guide for an illustrated breakdown of current and upcoming law changes.
How the Federal Estate Tax Rate and California Residency Put Your Legacy at Risk
Regardless of the absence of a California-specific estate tax, federal law applies to all U.S. citizens, including Californians. For deaths occurring in 2025, the federal estate tax exemption is $13.61 million per person. Anything above is taxed at 40%. This threshold is set to drop to about $7 million in 2026 due to the sunset of the 2017 Tax Cuts and Jobs Act. If you’re a married California couple with $30M in net worth, you stand to pay about $3 million in estate taxes if you don’t act before the sunset.
If you’re worth $20M or more, the combined effect of the 40% federal levy plus any potential California revival could put the effective estate tax rate California residents face north of 50%. On a $25M estate, that difference alone is more than $5M lost. That’s why advanced strategies—like SLATs, GRATs, and QPRTs—must be implemented before the 2026 sunset.
- Gift splitting: Gifting assets to children or trusts now—before the sunset—can lock in today’s higher exemption, protecting millions from future taxation.
- Portability: While surviving spouses can claim a deceased spouse’s unused exemption, mishandling paperwork (such as skipping the timely filing of IRS Form 706) can result in a permanent loss of millions in exemption—leaving families with a surprise tax bill.
For families with complex holdings—company shares, real estate partnerships, international assets—a robust strategy that addresses IRS audits, valuation discounts, and transfer methodologies is essential. These issues require advanced planning, not just a simple will.
Pro Tip: The IRS allows you to “lock in” your exemption under current law by gifting assets outright or via trusts by December 31, 2025. After 2025, the exemption is scheduled to halve. See details in IRS Gift Tax FAQ.
Where Most HNW Californians Go Wrong—and How to Fix It
Many high-net-worth individuals assume that their trusts or gifting plans are sufficient. Yet, the majority make at least one of these mistakes:
- Overreliance on Basic Revocable Trusts: These avoid probate but don’t deliver estate tax savings.
- Overlooking the Impact of Family Limited Partnerships: Improperly managed FLPs can attract IRS scrutiny, undermining discounts and exposing assets to full estate tax rates.
- Failing to Consider Out-of-State Property Taxation: California residents with holdings in Oregon or Washington could see their estates taxed by those states.
- Mismanagement of Gifting Strategies: Many place assets in irrevocable trusts incorrectly or without a coordinated income tax plan, accidentally causing capital gains nightmares for heirs.
It’s imperative to review all beneficiary designations annually and coordinate planning for both federal tax and state inheritance laws, especially if you have multi-state or international interests.
Expert Tactics: Proven Estate Tax Strategies for California Wealth
1. Irrevocable Life Insurance Trusts (ILITs)
Life insurance is a common tool in California legacy plans. An ILIT removes life insurance proceeds from the taxable estate, allowing a $10 million policy to pass to heirs tax-free—saving $4 million in estate taxes alone if otherwise subject to federal rates.
2. Grantor Retained Annuity Trusts (GRATs)
Effective for transferring appreciating assets, such as startup shares or real estate, at today’s low values. In 2024, the IRS 7520 rate was relatively low, but monitor changes for 2025. A properly designed GRAT can pass $8M in stock appreciation to heirs with zero tax cost, if structured and funded now.
3. Spousal Lifetime Access Trusts (SLATs)
For married couples, shifting assets to a SLAT lets one spouse benefit while funds are outside both estates. A couple funding a $13M SLAT in 2025 shields that value from the 2026 exemption drop—also offering flexibility if laws change again.
4. Qualified Personal Residence Trusts (QPRTs)
By transferring your primary home’s future growth to heirs at today’s discounted value, you can move $5 million in property with only $2 million counted against the estate exemption. QPRTs are especially effective in expensive California counties.
5. Charitable Lead/Remainder Trusts (CLTs/CRTs)
By splitting assets between a charity and your heirs, you generate significant income or estate tax reductions while supporting philanthropic goals. Contributing appreciated assets to a CRT can wipe out capital gains tax and minimize estate tax exposure.
To see how these strategies work together, review our estate tax planning services designed for HNW Californians seeking true multi-generational wealth optimization.
KDA Case Study: Estate Planning for a Silicon Valley Family Office
Persona: Married couple, late 50s, tech-founder family, $40M net worth split between private equity, commercial real estate, and art.
Problem: They believed a basic living trust and annual $18,000 gifts to their children would protect them from estate taxes. They had not considered the sunset of federal exemption or the impact of capital gains taxes on their business assets.
KDA Solution: We conducted a lifecycle wealth transfer audit. We immediately deployed a $27M SLAT for the spouse, funded a $10M ILIT, and moved two commercial properties into QPRTs. We coordinated annual gifting to irrevocable trusts for grandchildren and integrated a family business succession plan with valuation discounts. All IRS filings were reviewed to ensure audit-readiness.
Result: Projected savings for the family: $7.8M in avoided estate taxes, $450K in probate fees, and $2.2M in Federal capital gains. The consulting fee was $22,000; projected first-year ROI was above 450%—and the plan protected 40+ years of family wealth from legislative risk.
Red Flag Alert: The Most Common Estate Tax Mistake California Families Make
The single biggest mistake? Believing the state’s lack of estate tax means you’re safe. When federal exemption drops in 2026, most wealthy California families will cross the taxable threshold. Filing IRS Form 706 for portability is often skipped, with tragic impact—one spouse dies, and millions in estate exemptions are lost forever.
Too many Californians assume “no state estate tax” means no risk. In truth, the estate tax rate California heirs ultimately pay is dictated by federal law—and it can silently erase half of an estate above the exemption threshold. Filing portability elections, stress-testing trusts, and modeling state-level scenarios are the only ways to stay ahead of that curve.
Pro Tip: File IRS Form 706 within nine months of a spouse’s death, even if no estate tax is due. This secures the unused exemption and can protect up to $5M in future transfer tax savings. See IRS Form 706 Instructions for details.
Fast Tax Fact: The 2025–2026 Estate Tax Exemption Cliff
For 2025, the federal estate tax exemption is $13.61M. In 2026, this falls to about $7M. Anyone with $8M+ in estate value (including homes, life insurance, real estate, business shares, collectibles) should implement advanced planning before December 31, 2025, to lock in current limits.
FAQ: California Estate Tax Planning for HNW Individuals in 2025
Is there any chance California will create its own estate tax soon?
While legislation has been proposed in the past, there is currently no state-level estate tax in California. However, as other high-tax states revisit estate tax laws, there’s always risk of change. Monitor Sacramento legislation and consult an advisor annually.
Can portability save my family if my spouse dies before 2026?
Portability allows a surviving spouse to claim their partner’s unused exemption, but only if IRS Form 706 is filed within nine months after death. Many families lose millions because their CPA or attorney didn’t file in time.
I own a second home outside California. Does that state’s estate tax apply?
Yes. Your estate could face taxes in the state where the real property is located. For example, owning a home in Oregon (which has a $1M exemption and up to 16% estate tax) could add additional state-level taxes to your overall liability. Each property’s state rules must be analyzed during planning.
What about the federal gift tax exemption for 2025?
The annual gift tax exclusion in 2025 is $18,000 per donee. There is no California gift tax. Strategic use of this exclusion can transfer hundreds of thousands each year to heirs with zero tax cost.
IRS Guidance and Source Links
Ready to Safeguard Your Legacy?
For affluent Californians, estate tax planning before 2026 is now mission-critical. Don’t gamble with your family’s future—act while today’s high exemption rates are still in place, and optimize your estate before the federal cliff.
This information is current as of 8/26/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.
Book Your Private Legacy Wealth Consultation
Preserving your estate and avoiding unnecessary estate tax exposure is no accident—it’s a deliberate strategy. Book a private wealth consultation with KDA’s expert team and receive a plan custom-built to shield your family’s assets, avoid probate mistakes, and sidestep the 2026 cliff. Click here to protect your legacy now.
