Estate Tax Rate California: What High-Net-Worth Families Should Know for 2025 and Beyond

Only 0.07% of Americans ever pay federal estate tax — and in 2025, California remains one of the most misunderstood states for legacy planning. Too many wealthy families assume state estate tax is a back-burner issue or that federal levels will hold. That complacency can cost your heirs millions if you’re not two moves ahead of Sacramento or the IRS.

Here’s what sophisticated taxpayers need to know now—before Congress or the California legislature moves the goalposts.

Quick Answer: Does California Have an Estate Tax in 2025?

As of September 2, 2025, California does not impose a state-level estate or inheritance tax. However, the federal estate tax still applies to estates above $13.61 million per individual ($27.22 million for married couples) in 2025. This is set to sunset at the end of 2025, potentially slashing the exemption back to $7 million or lower in 2026 unless new legislation intervenes (see IRS estate tax guide).

Families with California property, business interests, or complex trusts must plan for both potential new state taxes and the coming drastic drop in the federal exemption.

For planning purposes, you should model both the current federal 40% levy and a potential state layer. If lawmakers reintroduce a 16% estate tax rate California, the combined effective rate could push well above 50%. Families with estates over $25M should not wait for legislation—using SLATs, GRATs, and valuation freezes now can protect millions before thresholds move.

How Federal Estate Tax Works for California Residents in 2025

Regardless of the lack of a California estate tax, Californians with significant assets are still subject to the federal estate tax—one of the most aggressive in the world. For estates over $13.61 million, the top federal tax rate is 40%. If the exemption drops to approximately $7 million per person in 2026 (as scheduled under current law), anyone with estates above that threshold could lose over $2.6 million to taxes that could have been avoided.

• Example: An estate worth $20 million in 2025: $20M – $13.61M exemption = $6.39M taxable. The estate would owe $2,556,000 (40% of $6.39M).
• Risk: After midnight on December 31, 2025, this same estate—if the exemption drops to $7 million—would owe $5,200,000 in federal estate tax. That’s a $2.6 million increase due to poor timing.

This is why timing asset transfers, structured gifting, and trust moves in 2025 can yield seven-figure savings. Misstep, and your family can lose nearly half their legacy.

Too many people dismiss the risk because California has no estate tax today. But the math is clear: if Sacramento set an estate tax rate California at 16% like Oregon, a $30M estate would owe roughly $4.6M on top of federal liability. That means timing gifts and trust funding in 2025 is more than defensive—it’s an offensive wealth transfer opportunity.

The Move Many Miss: Spousal Portability, Exclusion, and Gifting

Most high-net-worth families aren’t leveraging every available tax-saving lane:

• Portability: If a spouse dies, the survivor can transfer the unused exemption ($13.61M in 2025) but must file IRS Form 706 within 9 months of death to claim it (see IRS Form 706).
• Annual Gifting: Each individual can give up to $18,000 (2025) per recipient annually, tax-free. With multiple heirs, this can remove millions from an eventual estate filing.
• Irrevocable Trusts/SLATs: Spousal Lifetime Access Trusts and irrevocable trusts can “lock in” today’s higher exemption, protecting assets before the 2026 reversal.

Failing to use these tools in the current year almost always results in regret when the first estate tax bill arrives.

Why Most Wealthy Californians Are Still at Risk: Political and Regulatory Traps

Every legislative session since 2019, Sacramento has toyed with reintroducing a state-level estate tax. Voters rejected Prop 19’s inheritance reforms, but the state’s chronic budget issues keep this discussion alive. Meanwhile, Congress debates lowering the federal exemption, which could expose thousands more California families to a 40%+ tax on generational wealth.

Even if California never revives an estate tax, high-net-worth residents still need to plan as though it might. Proposals for a 10–16% estate tax rate California appear nearly every budget cycle, often tied to revenue shortfalls. The only families who escape surprise legislation are those who already shifted assets into multi-generational trusts or family entities before the law changed.

Plenty of high-net-worth individuals think, “We can always move to Nevada.” But most California-based assets—especially real estate, closely held businesses, or family offices—can still be subject to California law, regardless of residency change. Trust structures and timing become absolutely critical here.

Differentiator: Our estate tax planning services navigate this uncertain terrain for California’s most complex families—before laws change, not after. Smart trust design, ownership restructuring, and aggressive gifting are not DIY jobs at this level.

How to Use Trusts, Partnerships, and Gifting to Slash Estate Taxes

California high-net-worth taxpayers can cut—or even eliminate—future estate taxes by:

• Creating Intentionally Defective Grantor Trusts (IDGTs): This allows appreciation to accrue outside the estate while the donor pays income tax on earnings, compounding wealth transfer value.
• SLATs (Spousal Lifetime Access Trusts): Each spouse locks in the current federal exemption, even if the law drops after 2025. Funds can be accessed indirectly while sheltering future appreciation.
• Family Limited Partnerships (FLPs) & LLCs: These vehicles enable valuation discounts, shifting ownership to heirs at reduced tax values, and often discourage lawsuits.

All of these techniques require advanced legal documents, precise valuations, and, in many cases, immediate action by December 31, 2025, to lock in higher exemption levels.

For Inheriting Real Estate: The California Property Tax Trap

Even without a state estate tax, California’s property tax rules (Prop 19) mean that inherited real estate can trigger reassessment to market value—dramatically increasing tax liability for heirs. In 2025, failure to plan can result in thousands in extra annual taxes on top of federal estate tax exposure.

• If you plan to transfer investment property or legacy real estate to children or heirs, consult on the detailed California estate tax and legacy guide first.

Pro Tip: Use gifting trusts and annual exclusion gifts in tandem—before December 31, 2025—so that appreciation is excluded from 2026’s potentially lower exemption.

KDA Case Study: HNW Entrepreneur Shields $14M from Future Estate Tax

Client: Nicole C., Founder exiting $23M business, $18M net worth in California

Problem: Sale of company put Nicole’s estate well above the federal exemption. She worried about a multi-million-dollar tax hit on death—especially if the exemption fell to $7M in 2026. None of her assets were in trusts, and her estate plan hadn’t been updated since 2018.

What We Did:

• Formed two SLATs, shifting $11 million into irrevocable trusts and locking in 2025’s $13.61M exemption.
• Utilized annual gifting to move another $540,000 tax-free to her heirs via multiple beneficiaries.
• Moved commercial real estate into an FLP, structuring minority interests for additional valuation discounts (22%).

Outcome: Nicole shielded $14.9 million from estate tax, saving $5.96 million in anticipated taxes ($14.9M x 40%), while restructuring her plan for long-term family control. Total KDA fees were $37,000 (total realized ROI: 161x).

Red Flags: Why Most California Estate Plans Fail Under Audit

• Lagging Updates: Documents older than three years are almost always out of sync with current tax law. This is the #1 way families lose millions in avoidable tax.
• Improper Trust Funding: If trusts are not properly funded or assets retitled, they do not “count” for exemption purposes.
• Failure to File Required IRS Forms: Missed Form 706 or 709 filings can void spousal portability or annual gift reporting—costing the entire strategy.
• Procrastination: Waiting until 2026 is too late to lock in higher exemptions. IRS has made clear there’s no “grandfathering” after sunset dates (see IRS estate and gift tax FAQs).

Review your plan every two years, immediately after every significant financial event (business sale, inheritance, move, divorce/marriage), or if Congress changes the rules.

Red Flag Alert: Nearly half of all California trusts over $5M will fail to pass IRS review if not updated after 2022 tax law changes. Don’t risk losing family wealth to preventable compliance mistakes.

Common Questions About Estate Tax Rate for Californians

Will California Re-Implement an Estate Tax?

It’s always possible. Active bills and public debate surface almost every session, especially as state finances grow strained. Failure to plan for both possible state and certain federal tax changes means playing defense with family wealth.

How Can I Lock In the Current Federal Exemption?

Gifting and trust strategies must be executed and funded by December 31, 2025, to lock in the higher $13.61M exemption. Miss that date and your available tax-free transfer may drop by nearly 50%. Consult a strategist skilled in SLAT and IDGT design.

Is There a California Inheritance Tax?

No. In 2025, California does not have a separate inheritance tax. Heirs may face property tax reassessment or capital gains tax on certain inherited assets, but not an inheritance-based levy.

How Do I File for Portability?

File IRS Form 706 within nine months of the decedent’s death. This election isn’t automatic—fail to file and your heirs lose millions in tax protection.

Book Your Estate Tax Planning Consultation

If your family could be exposed to millions in new estate taxes, don’t gamble on old strategies or wishful thinking. Schedule your confidential session with a KDA legacy planner and discover legal moves to secure your family’s wealth for the next generation. Book your estate tax planning consultation here.