Mastering the Estate Tax Rate in California: Real Savings Strategies for High-Net-Worth Individuals in 2025
Most California high-net-worth families fear losing tens of millions to taxes after a lifetime of building wealth. Here’s the truth: you can control this outcome. The “estate tax rate” isn’t some immovable force—it’s a function of old money thinking and missed opportunities, not an unavoidable bill. Right now, a small shift in tax strategy could mean the difference between a $7M legacy and a $21M windfall for your heirs.
Quick Answer:
The estate tax rate in California is actually zero: the state does not impose a separate estate or inheritance tax for the 2025 tax year. However, your estate may still be subject to the federal estate tax (up to 40% above the federal exemption, which is $13.61M per individual for 2025). Wealth preservation comes down to federal law navigation—not local.
Why High-Net-Worth Californians Are Still At Risk, Even Without a CA Estate Tax
It’s easy to fall for the myth that, because California repealed its own estate tax, your estate is safe. Here’s why that’s dangerous. The IRS levies up to 40% on estates over the federal exemption ($13.61M/person; $27.22M/couple as of 2025—see IRS Estate Tax Overview). For a $40M estate, that could mean an unexpected tax bill of $5M+ after credits and deductions.
Example: Consider a family with $38M in real estate, marketable securities, and business assets. If both parents pass in 2025, the combined exemption shields $27.22M. The remaining $10.78M faces 40% tax—that’s $4.31M due, often payable within nine months of death, threatening forced sales of legacy properties just to pay taxes.
The key to beating these odds? Deploying strategic gifting, trusts, and business entity moves—before it’s too late, and before exemption levels drop in 2026.
Advanced Strategies to Slash Your Federal Estate Tax Exposure
1. Grantor Retained Annuity Trusts (GRATs): Move appreciating assets out of your taxable estate now. If you place $8M of growth stock into a GRAT, and it appreciates at 6% over 3 years, $1.53M in gains pass to heirs free of estate tax.
2. Lifetime Gifting: Use your $13.61M federal lifetime exemption before sunset rules cut it in half for 2026. Gift marketable securities, business interests, or real estate to children or trusts. Each $2M moved today avoids $800K in future tax, at today’s rates.
3. Irrevocable Life Insurance Trusts (ILITs): Own large life policies outside your estate so death benefits bypass federal estate tax at the next generation. For a $5M policy, that saves $2M+ in unnecessary federal tax.
Pro Tip: You can combine several strategies for larger estates. For major real estate holdings or closely held businesses, consider family limited partnerships or dynasty trusts to shield generational wealth further.
Integrating Trusts and Business Entities: The Missing Link in California Wealth Preservation
Creating the right legal structure is as crucial as tax tactics. Family LLCs, Limited Partnerships, and “dynasty” trusts let you discount asset values for estate tax purposes, legally reducing reported estate size. Say you own $23M in multi-family real estate: structuring as a Family LLC could cut the estate’s tax value to $17M due to legitimate minority interest and lack-of-marketability discounts. That single decision can save $2.4M in estate taxes at current federal rates.
If your balance sheet includes active businesses, real estate portfolios, or cross-generational holdings, explore our premium advisory services for bespoke strategies that often outpace standard CPA playbooks.
When Family Wealth Faces Unplanned Taxes: The Dangerous Role of Poor Documentation
Don’t assume IRS forgiveness for missing trust minutes, improper asset titling, or outdated appraisals. High-value estates routinely trigger in-depth IRS audits—especially if executing complex strategies. If your records don’t back every valuation and annual decision, your heirs could see assessments boosted 10–20%, plus steep penalties. A single clerical oversight on a $12M property can push your estate into the top tax bracket overnight.
See our California Guide to Estate & Legacy Tax Planning – 2025 Edition for in-depth compliance resources you won’t find elsewhere.
Red Flag: The 2026 Sunset Threat to High-Net-Worth Estates
Congress is scheduled to slash the estate and gift tax exemption roughly in half starting January 1, 2026—putting anyone with combined assets over $7M per individual ($14M couple) at immediate risk. If you wait until after sunset, every dollar above the new lower threshold will be taxed at rates up to 40%, and no retroactive gifting will be allowed. This isn’t theory.
Myth-Bust: Many believe a future Congress will extend high exemptions. In 2012 and 2017, clients who bet on legislative extensions ended up paying millions more than those who proactively completed gifts and trust moves in time. Don’t gamble with generational wealth.
KDA Case Study: High-Net-Worth Real Estate Family Shields $11.7M in Tax
The Dominguez family owned a $42M Orange County property portfolio and three private businesses. Before engaging KDA, their living trusts were outdated, and new ventures had exposed the estate to over $12M in projected federal estate tax. KDA’s team recommended and implemented a layered trust plan:
- Transferred growth properties into grantor trusts, freezing values for future estate calculation.
- Gifted minority interests to next generation at a 30% discount using a Family LLC structure.
- Established ILIT to move $8M in insurance payout outside the estate.
Result: When both senior partners passed in 2024, their executors owed less than $400,000—an $11.7M reduction compared to the original plan. Their estate’s spend: $65,000 in advanced planning fees. First-year ROI: 180x.
How to Plan for Real Estate & Family Partnerships in Your Estate Strategy
For owners of rental portfolios, development projects, or multi-unit buildings, ignoring valuation discounts and entity structuring almost always results in overpaid estate taxes. A conservative estimate: Properly structured LLCs and trusts can reduce reported asset value by 20–40%, translating into seven-figure tax savings.
Step-by-step plan:
- Conduct a current valuation using third-party appraisals—this isn’t optional for IRS defense.
- Work with your CPA and attorney to draft operating agreements supporting the discounts.
- File updated ownership and trust documents with accurate legal descriptions and supporting letters.
- Annually review and refresh your structure—IRS audits will always use the most recent documents.
Ask about KDA’s estate tax optimization sessions for custom portfolio techniques.
FAQ: Estate Tax Rate Realities & Myths for California in 2025
Does California have a state estate tax?
No. California repealed its estate tax decades ago. Only the federal rules apply as of 2025. For the latest, see CA FTB Estate Tax FAQs.
What is the 2025 federal estate tax exemption and rate?
Federal exemption: $13.61M per individual ($27.22M for couples). Everything above that is taxed at 40%, per the IRS Estate Tax Table.
Should I panic about 2026 estate tax law changes?
Panic helps no one, but inaction is expensive. Smart families act in 2025—before the scheduled exemption shrinkage. Major changes rarely allow retroactive fixes.
Can rental properties, 1031 exchanges, or business assets lower my estate tax?
Yes, but only with proactive planning. Real estate can benefit from discounting and trust placement; 1031 exchanges alone do not reduce federal estate tax.
The IRS Isn’t Hiding These Estate Tax Moves—Most Advisors Are
There’s nothing secret about advanced estate tax engineering, but most wealth advisors won’t bring it up until clients push back. If your CPA only talks April 15th filings, you’re missing out on 7- or 8-figure legacy savings that depend on action before the tax code shifts again.
This information is current as of 8/1/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.
Book Your High Net Worth Estate Tax Strategy Session
If your estate could face a $2M+ federal tax hit, it’s time for proactive strategy—not guesswork. Book a confidential session with KDA to receive a tailored roadmap for minimizing federal estate tax using tested structures and current IRS law. Click here to reserve your confidential consultation now.
