California does not have a state estate tax. When someone dies in California, their estate is subject only to the federal estate tax, which applies to estates valued above the federal exemption threshold. Most California families will not owe any estate tax, but high-net-worth individuals and couples with significant combined assets should understand how the current federal rules apply to them and review their estate plans with a California estate planning attorney to ensure their wishes are protected and potential tax burdens are minimized.
How the Federal Estate Tax Works
The federal estate tax is a tax on the transfer of wealth from a deceased person’s estate to their heirs. It is calculated based on the gross value of all assets owned at the time of death, including real estate, investments, retirement accounts, business interests, and life insurance proceeds payable to the estate.
After calculating the gross estate, certain deductions reduce the taxable amount:
- Debts and liabilities owed at the time of death
- Funeral and administrative expenses
- Assets passing outright to a surviving U.S. citizen spouse (the unlimited marital deduction)
- Qualifying charitable bequests
What remains after deductions is the taxable estate. If that number exceeds the applicable exemption, the excess is taxed at a federal estate tax rate of up to 40%.
The One Big Beautiful Bill Act: What Changed
The One Big Beautiful Bill Act, signed into law on July 4, 2025, made permanent changes to federal estate, gift, and generation-skipping transfer taxes. This legislation resolved years of uncertainty surrounding the scheduled sunset of the elevated exemptions established by the Tax Cuts and Jobs Act of 2017, which would have caused the exemption to drop by roughly half at the end of 2025.
The Act permanently extends the federal estate and gift tax exemption, raising it to $15 million per individual and $30 million per married couple starting in 2026, with the exemption indexed for inflation beginning in 2027. There is no expiration date on the new $15 million exemption amount.
For California residents, this means the urgency to act before the year-end deadline has passed. That said, high-net-worth individuals should not assume they have unlimited time to plan and should use the coming years to implement gifting and estate tax reduction strategies, since a future shift in Congress could bring changes to these provisions.
Portability for Married Couples
Any unused estate and gift exemption continues to be portable at death to a decedent’s surviving spouse. With the exemption now set at $15 million per individual, married couples can effectively shield up to $30 million from federal estate tax. A portability election must be made on a timely filed federal estate tax return, even if no tax is owed.
Gifts, Annual Exclusions, and the Lifetime Exemption
The estate tax and the federal gift tax are unified. Gifts made during life reduce the exemption available at death, and the IRS tracks them through gift tax returns.
Two key exceptions allow tax-free giving without touching the lifetime exemption:
- The annual gift tax exclusion remains at $19,000 in 2026, allowing the first $19,000 of qualifying gifts to a particular recipient to be excluded from taxable gifts
- Donors may continue to make an unlimited amount of direct payments for qualified medical and educational expenses on behalf of any other individual with no gift tax consequences
Strategic gifting over time remains one of the most accessible ways to reduce the size of a taxable estate. An estate planning attorney can help structure a gifting plan that fits your family’s long-term goals.
Trusts and Estate Tax Planning
Several trust structures are designed specifically to reduce or eliminate estate tax exposure. Some of the most commonly used options include:
- Irrevocable Life Insurance Trust (ILIT): Removes life insurance from the taxable estate while preserving the death benefit for heirs. An ILIT requires careful drafting and ongoing administration to maintain its tax benefits.
- Spousal Lifetime Access Trust (SLAT): Allows one spouse to gift assets into a trust for the benefit of the other while removing those assets from the taxable estate. Because the grantor’s access is indirect, a SLAT requires thoughtful structuring to avoid unintended consequences.
- Grantor Retained Annuity Trust (GRAT): Transfers appreciating assets to heirs at a reduced gift tax cost by retaining an annuity stream for a set term. GRATs work best when the assets transferred are expected to appreciate significantly.
- Charitable Remainder Trust (CRT): Provides income to the grantor during life, with the remainder passing to charity, generating both an income stream and a charitable deduction. A CRT can be a good fit for individuals with highly appreciated assets and charitable goals.
Each of these tools has specific rules, tax implications, and trade-offs. None of them is a one-size-fits-all solution. The right combination depends on the size and composition of the estate, family structure, and long-term goals.
What California Residents Should Watch
While California does not collect a separate state estate tax, there are a few state-level issues that affect estate planning:
- Property tax reassessment: California’s Proposition 19, effective since 2021, significantly narrowed the parent-child exclusion from property tax reassessment. Inherited property that is not used as a primary residence is now reassessed at fair market value, which can sharply increase ongoing property taxes for heirs.
- Community property rules: California is a community property state. Each spouse owns a 50% interest in assets acquired during the marriage, and both halves receive a stepped-up basis at the first spouse’s death, which can reduce capital gains taxes when assets are later sold.
- No inheritance tax: California does not impose an inheritance tax on heirs receiving assets from a deceased person’s estate.
These state-specific factors make California estate planning meaningfully different from planning in other states. For families with real property, business interests, or blended family situations, these rules can have significant financial consequences that a well-structured plan can address.
Ready to Plan Ahead With Proper Estate Planning?
The federal estate taxes have changed significantly, and now is a good time to ensure your existing plan reflects current law. At Frisella Neilson, APC, Lisa J. Frisella and our team work with individuals and families in San Diego to build estate plans that address both current law and foreseeable changes ahead.
If you have questions about estate taxes, trust structures, or protecting your assets for the next generation, fill out our online contact form or call (619) 260-3500 to speak with our attorneys.
We serve all areas in San Diego and throughout California.
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