If You Think California Estate Tax Is Gone, Read This Before Passing Wealth
Every year, affluent Californians move millions—sometimes billions—across generations. Most believe the threat of a california estate tax is dead. But the fear is rooted in reality: Congress, Sacramento, and the IRS have all attempted to revive, rebrand, or retarget estate levies more than a dozen times since 2000. If you’re a high-net-worth individual in California planning for a wealth transfer in 2025 or beyond, here’s what you must know now—and which costly assumptions probably need updating.
Quick Answer
California currently does not collect a state-level estate tax as of August 9, 2025. However, if your estate exceeds federal exemption limits ($13.61 million/person for 2025), federal estate tax still applies at rates up to 40%. Legislative risks—both state and federal—mean the window for legacy tax planning could close sooner than expected.
Misconceptions Can Cost Your Heirs Millions
“There’s no death tax in California, so we’re in the clear”—that’s a multi-million-dollar myth. Many families structure trusts, gifts, and asset transfers on the assumption that only the federal government matters. But the landscape is slippery:
- Federal exemption is sunsetting: The historically high $13.61M exemption per person halves at the end of 2025 under current law.
- California may revisit estate taxes: Several bills have been introduced since 2019 to reinstate a Golden State estate tax targeting ultra-wealthy residents.
- IRS audits are increasing: High-value estates, especially those using aggressive exemptions, face greater scrutiny every year.
Overlooking these realities has led to surprising six- and seven-figure tax bills for heirs, especially when portfolios include real estate, LLCs, and closely-held stock.
Federal Estate Tax Exposure for California HNW Individuals
Even with the absence of a california estate tax, federal oversight is relentless:
- For a married couple with $35 million in net assets (homes, portfolio, operating entities), ignoring the sunset could mean $8.76 million+ exposed to estate tax after 2025.
- Revocable trusts and basic wills often fail to maximize exemption stacking and spousal portability, exposing more to taxation.
- Charitable trusts, GRATs, SLATs, and advanced gifting are not “set it and forget it”—laws and IRS scrutiny change constantly.
Consider the federal estate tax return (Form 706): for 2025, any estate exceeding $13.61M per individual (or $27.22M for married couples using portability) must file and potentially pay up to 40%. See current Form 706 guidance here.
What Affluent Californians Are Doing Right Now
Smart high-net-worth families aren’t assuming California estate tax stays at zero. Proactive advisors are building multiple contingency plans, including:
- Lifetime gifting: Making use of the full $13.61M per-person lifetime gift exemption in 2025, before the potential sunset halves it to roughly $7M.
- Spousal Lifetime Access Trusts (SLATs): Allowing one spouse to gift assets (and future appreciation) out of their taxable estate, with access for the other spouse.
- Irrevocable Grantor Trusts: Moving appreciating assets outside the estate, but retaining income tax liability for “tax burn,” enhancing overall family wealth.
- Charitable trusts: Locking in philanthropic intent now, while gaining both immediate income tax deductions and future estate tax reduction.
For step-by-step approaches, see our California Guide to Estate & Legacy Tax Planning.
Are You Overlooking High-Risk Triggers?
Many estate plans fail at these common risk points:
- Outdated irrevocable trusts with pre-2010 provisions
- Limited liability companies (LLCs) owned across multiple states, triggering apportionment disputes
- Non-grantor trusts holding CA real estate subject to reassessment or special taxes
Don’t leave it to chance. If your family has more than $5M in any combination of real property, investments, or closely held stock, request a review every 18–24 months.
Pro Tip: For gifting strategies, always file Form 709—even if gifts are under the annual exclusion. An official paper trail may protect against future IRS audits.
KDA Case Study: High-Net-Worth Family Avoids $7.8M Estate Tax Hit
In 2024, a Bay Area family with $32 million in assets (primarily appreciating tech stock and Silicon Valley investment properties) was told by their former advisor that “California estate tax doesn’t exist, only federal matters.” They were ready to schedule gifts under the annual exclusion and finalize a basic living trust.
Upon KDA’s review, it became clear that their trust wasn’t structured to capture portability or SLAT advantages, and they hadn’t documented strategic lifetime gifts. We restructured their plan, shifting $13.3M across two SLATs and an irrevocable grantor trust. This realignment preserved $8M+ of exemption under current rules, with the flexibility to lock in strategies pre-2026 sunset. When the patriarch passed away in mid-2025, the heirs avoided $7.8M in estate tax versus what they would have paid under their old trust language. KDA’s fee for all structuring, compliance, and coordination: $36,500—less than 0.5% of the avoided tax. The ROI for the family: 21x their planning investment in first-year tax avoided alone.
Why Most High-Net-Worth Families Miss This Tax Trap
Big mistake: relying on out-of-date trust language, failing to capture new gifting windows, or assuming the window to act will stay open. Many affluent Californians never file their own Form 709 for lifetime gifts, or update LLC operating agreements to reflect intergenerational owners—ripe targets in IRS and FTB “legacy wealth” audits.
What If California Passes an Estate Tax in 2026?
The threat is real. If SB378 or similar legislation passes—targeting estates over $3.5 million—the state levy could add up to 16% on amounts above the threshold, stacked on top of federal. For a $15M estate, this is a $1.84M California estate tax bill layered over $560K in federal liability, even after strategic gifting. It’s critical to review legislative activity and coordinate planning windows with your advisory team every year.
Should I Move Assets or Residence Out of State?
Leaving California is not a bulletproof strategy. If assets remain tied to the state, real property is owned here, or beneficiaries are CA tax residents, the Franchise Tax Board may claim taxing rights. Similarly, trusts holding in-state LLC or real estate are analyzed for CA taxation. For robust solutions, explore our premium advisory options for New York, Florida, and Texas alternatives.
How Do Advanced Trusts Lower My Exposure?
SLATs, GRATs, ILITs (Irrevocable Life Insurance Trusts), and similar irrevocable vehicles are most effective when customized for both current law and potential future state and federal estate taxes. They provide flexibility, asset protection, and leveraged gifting benefits. Make sure trust language is up-to-date with 2025 laws and monitor for major changes in exemption, valuation discounts, or state taxation. IRS Publication 559 and IRS Publication 523 provide background, but expert customization is non-negotiable for anyone over $5-10M in net worth.
Key IRS and FTB Citations for Wealth Transfers
- IRS Estate Tax Overview (IRS.gov)
- IRS Form 706 (Estate Tax Return)
- IRS Form 709 (Gift Tax Return)
- IRS Publication 559 (Survivors, Executors, and Administrators)
- California Franchise Tax Board (FTB)
For more on advanced options, read our California estate tax planning guide.
FAQs for California Wealth Transfers & Estate Tax
Q: Is there a California estate tax as of August 9, 2025?
No—but high exemption levels may change, and Sacramento continues to discuss new taxes. Watch the legislative calendar closely.
Q: What’s the federal estate tax exemption for 2025?
$13.61M per person, $27.22M per married couple (with portability). See IRS estate tax details.
Q: Do I need to update my trust or gifting plan in 2025?
If your net worth is over $5M, yes. The law sunsetting, legislative threats, and IRS review standards make it urgent.
Q: Is gifting real estate to heirs or into a trust subject to “step-up in basis”?
At death, yes. But gifts during life generally pass the original basis—plan carefully to avoid future capital gains issues. See IRS Publication 551.
Q: Can I avoid estate taxes by creating an out-of-state trust?
In some cases, but California residency and situs law are extremely aggressive. Get advice before acting.
Red Flag Alert: Waiting Is the Most Expensive Estate Tax Mistake
With federal rules set to sunset after 2025, and California ever poised for a new estate tax, waiting “one more year” is unacceptable if your net estate is over $5 million. The risk: you miss out on $10M+ in exemption, or pay hundreds of thousands on a technicality.
Pro Tip: Don’t rely on annual exclusion gifts alone; combine advanced trusts with lifetime exemption planning to create true legacy security.
Key Social Share Quips
- The real risk isn’t California estate tax—it’s waiting until Sacramento acts to future-proof your legacy.
- Estate tax windows close quickly. Smart families are outmaneuvering the IRS while it’s still legal and lucrative.
- No death tax in California? Maybe not yet. But high-net-worth families know not to bet the fortune on politics.
This Week’s Takeaways (For Your Email/Social Channels)
- California’s estate tax threat is real—only proactive trusts and gifting strategies shield your legacy.
- Your trust and gifting plan must match 2025 rules—most are dangerously out of date.
- Lock in your exemption now or risk millions lost to avoidable taxes and compliance errors after 2025.
This information is current as of 8/9/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.
Book Your Wealth Preservation Strategy Session
If your family’s estate could be exposed to future federal or California estate tax—don’t leave your legacy to chance. Our estate planning team helps you lock in current credits, optimize trusts, and avoid IRS and FTB audit traps before they cost you millions. Click here to book your private estate planning session now.
