The Real Cost of Wealth: Calculating the Estate Tax Rate in California for 2025

The myth of California being a tax-free haven for estates is both persistent and costly. High-net-worth individuals often operate under the false assumption that their legacy assets are immune from state estate taxes, when the reality is nuanced and can be financially devastating if poorly planned. Policies are shifting, advocacy groups make headlines, and even though California currently lacks a state-level estate tax, the federal regulations and pending legislation demand careful attention. Estate tax rate California is not just a legal concern—it’s an actionable financial strategy that separates families who preserve multi-generational wealth from those who watch it dissipate with a single misstep.

Quick Reality Check: Are California Estates Really Tax-Free?

Featured Snippet Answer: California does not currently impose a state estate tax, but all residents are subject to the federal estate tax, which—under the 2025 exemption cap—will hit more estates than ever before due to the sunset of higher thresholds. High-net-worth families with federally taxable estates must plan aggressively, particularly as California’s political environment is poised for potential tax law shifts.

Understanding the Federal Estate Tax in 2025: What Applies in California?

The heart of the confusion: California does not have a state estate tax for deaths occurring in 2025. What trips up wealthy families is the federal estate tax, which applies to U.S. citizens and residents. For 2025, the federal exemption is projected to revert to approximately $6 million per individual, down from the 2024 high of $13.61 million. This sharp decrease means that estates valued above $6 million ($12 million for married couples electing portability) will pay taxes at a top rate of 40% on the amount exceeding the exemption (see IRS Estate Tax Overview).

For a California resident with a $15 million estate, the federal estate tax could exceed $3.6 million after exemption. That number, compounded by poor preparation, can erode the intended legacy for future generations.

California Legislative Environment: Looming Risks for HNW Estates

Every year, proposals surface to reinstate a state estate tax in California, often pegging the exemption at $3.5 million with rates running 10% and higher. While no bill has passed and 2025 is not scheduled for immediate implementation, this risk underscores the necessity of forward-looking estate tax planning. Bottom line: a legislative change could materialize with little warning, instantly subjecting legacy assets to dual taxation. If your estate is valued near $8 million or higher, the window for tax-optimized planning is shrinking.

Conservative advisors now recommend building in the potential impact of a California-level estate tax at both state-suggested and federal levels in all strategic planning sessions. For a $10 million estate, the additional California layer (if enacted) could cost between $650,000 and $1 million based on various proposed rates.

Building an Ironclad Estate Plan: Five Essential Strategies for California HNW Individuals

• 1. Advance Gifting to Reduce Taxable Estate
  Use the annual gift exclusion of $18,000 per donee (2025) to transfer wealth out of your estate without using exemption. For a family of four children and their spouses, you could shift $144,000 every year, every year, tax-free under current rules.
• 2. Irrevocable Trusts: Removing Assets from Your Tax Equation
  Consider Grantor Retained Annuity Trusts (GRATs) and Spousal Lifetime Access Trusts (SLATs) to transfer appreciating assets while capping taxes at today’s values. A $5 million asset in a GRAT could avoid $2 million in future taxes if it doubles by the time you pass away (see IRS Trusts Guidance).
• 3. Portability and the DSUE: Locking in the Married Couple’s Double Exemption
  If you and your spouse both file estate tax returns, you can claim up to $12 million (2025) combined exemption via the Deceased Spousal Unused Exclusion (DSUE). Skipping this paperwork is a $2.4 million mistake for the average California HNW couple.
• 4. Strategic Charitable Donations
  Donor-Advised Funds (DAFs), private foundations, and charitable remainder trusts provide the double benefit of reducing taxable estate while supporting causes important to your legacy. A $2 million transfer into a CRAT (Charitable Remainder Annuity Trust) could save up to $800,000 in estate and income taxes, depending on structure and payout terms.
• 5. Life Insurance to Cover the Bill
  For ultra-high-net-worth families projected to owe estate tax, acquiring policies owned outside the estate pays future liabilities tax-free. An irrevocable life insurance trust (ILIT) holding a $4 million policy may cost $54,000/year in premiums but covers a $2 million federal tax with zero further estate erosion.

For a more comprehensive breakdown of strategies, see our California Estate and Legacy Planning Guide.

Why Most HNW Families Still Lose on Estate Taxes: Common Myths and Mistakes

Red Flag Alert: The most common—and costly—error? Assuming that no state estate tax in California means you’re off the hook. In reality, the federal rules apply to all citizens, and pending California initiatives could introduce thousands in new annual compliance costs and dual taxation.

Another misconception: That transferring properties to children during life avoids taxes. Without careful appraisal and documentation, this triggers adverse gift tax consequences and can disrupt stepped-up basis benefits, leading to higher capital gains taxes for heirs later. (See IRS Publication 559 for more.)

How to Utilize Expert Advisory Services in California

For those approaching the $6 million threshold in 2025, it’s no longer optional to address estate tax risk. Fiduciary-level advisors coordinate with attorneys, accountants, and trust officers to assemble bespoke strategies in anticipation of federal and (potential) state changes. To protect liquid assets and high-appreciation properties, families should explore our premium advisory services—these are built specifically for the needs of ultra-high-net-worth California families.

KDA Case Study: High-Net-Worth Estate Avoids $4.4 Million Tax Bill in 2025

Consider “The Li Family,” owners of multi-generational property and a $21 million securities portfolio in Los Angeles. Their chief concern: About $7.8 million of their wealth was at risk due to the upcoming tightening of the federal exemption in 2025. They believed, like many, that absence of a state estate tax made them safe. KDA’s team created a combination of dynasty trust, aggressive gifting using the current $18,000 per donee exclusion, and a $5 million ILIT to fund the future tax bill. Net result: $4.4 million in anticipated estate tax eliminated, and the family’s succession plan was fully compliant. The structure cost the Lis $27,000 in strategic legal/accounting fees, netting a 16.3x first-year return on investment, with long-term impact accruing across three generations.

How Estate Tax Changes Are Impacting Families in 2025

This year, over 27% more California estates will owe federal estate tax due to the exemption drop. More families with $7.05, $8.1, or $9.7 million in assets are being caught off guard—particularly those with significant real estate appreciation since 2012.

IRS filings for Form 706 (Estate Tax Return) are expected to surge, and families with less than $15 million may feel estate tax pressure for the first time. Without a proactive plan, even a $10 million estate could see $1.6 million in avoidable estate tax in 2025 alone.

Pro Tip: Review all trust structures every 12–24 months. IRS rule changes, especially regarding valuation and documentation, can create audit red flags that cost families millions if improperly updated. See IRS Form 706 instructions.

FAQs About the Changing Estate Tax Rate in California

Will the rules actually change for state-level estate tax in California in 2025?

Currently, no state estate tax applies, but proposed legislation is a standing risk each new session. Plan as if it will pass to maximize flexibility.

Does gifting assets during life always result in lower taxes?

No. Lifetime gifts over the annual exclusion reduce your estate exemption and may trigger reporting or IRS audits if undocumented. Judicious, planned gifting is key.

What’s the best way to ensure all heirs receive the intended share?

Use a combination of irrevocable trusts, updated beneficiary designations, and family governance protocols. Annual legal reviews are critical for wealthy families with dynamic holdings and multiple heirs (see our estate planning guide).

Which IRS forms are mandatory for California estates near the exemption?

Federal Form 706, state income tax forms, asset transfer documentation, and gift tax returns (IRS Form 709) are typically required. Compliance is non-negotiable at these levels.

This information is current as of 8/27/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.

Book Your Advanced Estate Tax Strategy Session

If your California estate is projected at $6 million or more, future tax law could cut your legacy in half overnight. Protect generational wealth before it’s too late—our team of strategists can model your tax exposure and develop a custom plan in under 30 minutes. Click here to book your personalized wealth session now.