Estate Taxes in California: What You Owe, What You Don’t, and How to Plan

California has no state estate tax. Federal estate tax applies to California residents, but only to estates above $15,000,000 in 2026.

That threshold is permanent. The One Big Beautiful Bill Act, signed July 4, 2025, eliminated the scheduled sunset under the Tax Cuts and Jobs Act. The $15,000,000 exclusion is now a fixed baseline, indexed for inflation beginning in 2027.

For most Californians, the result is no estate tax exposure at any level. For estates approaching or above that threshold, the right structure can move tens of millions out of the taxable estate. Some may entirely eliminate the exposure.

Does California Have an Estate Tax?

California does not have a state estate tax and has not had one since 2005, when the state’s estate tax was eliminated following changes to federal law. There is also no California inheritance tax. Beneficiaries who receive assets from a California estate owe nothing to the state based on what they inherit.

What California does have is exposure to the federal estate tax, which applies to estates exceeding the federal basic exclusion amount. Beyond that, two considerations are worth knowing: California’s Prop 19 can trigger property tax reassessment on inherited real estate, and capital gains taxes may apply when inherited assets are sold. Both are covered in detail below.

Federal Estate Tax: What California Residents Need to Know

The federal estate tax is a tax on the transfer of assets at death. It applies to U.S. citizens and residents regardless of which state they live in. California residents are subject to the same federal rules as everyone else.

The 2026 Federal Estate Tax Exemption

The federal basic exclusion amount for 2026 is $15,000,000 per individual. Estates below that threshold owe no federal estate tax. Estates above it are taxed only on the amount exceeding the exclusion.

That figure is permanent. The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, amended IRC §2010(c)(3) to lock in the higher exemption that had been scheduled to expire under the Tax Cuts and Jobs Act. Beginning in 2027, the $15,000,000 baseline adjusts annually for inflation per Rev. Proc. 2025-32.

For reference, the exclusion was $12,920,000 in 2023 and was projected to fall to roughly $7,000,000 in 2026 before OBBBA eliminated that sunset permanently. Readers who researched this topic before mid-2025 may have seen those older figures.

How the Tax Is Calculated

The federal estate tax is calculated on the taxable estate. That is the gross value of everything the decedent owned at death, reduced by allowable deductions. Common deductions include outstanding debts, administrative expenses, charitable bequests, and transfers to a surviving spouse (the unlimited marital deduction).

Once deductions are applied, the basic exclusion amount is subtracted. Only what remains above that threshold is subject to tax. Rates are graduated under IRC §2001(c), with a top rate of 40%.

Taxable Amount	Tax Rate
$0 – $10,000	18%
$10,001 – $20,000	20%
$20,001 – $40,000	22%
$40,001 – $60,000	24%
$60,001 – $80,000	26%
$80,001 – $100,000	28%
$100,001 – $150,000	30%
$150,001 – $250,000	32%
$250,001 – $500,000	34%
$500,001 – $750,000	37%
$750,001 – $1,000,000	39%
Over $1,000,000	40%

A California resident with a $20,000,000 gross estate and no deductions beyond the standard exclusion would owe federal estate tax on $5,000,000. At 40%, that is $2,000,000

Portability and the Married Couple Exemption

Married couples can effectively double the federal exclusion. When one spouse dies, any unused portion of their $15,000,000 exclusion transfers to the surviving spouse. Combined, a married couple can shield up to $30,000,000 from federal estate tax.

This is called portability. To use it, the surviving spouse must elect portability on a timely filed Form 706, the federal estate tax return, even if no estate tax is owed at the first death. The election is not automatic.

If the original filing deadline was missed, Rev. Proc. 2022-32 allows a late portability election up to five years after the deceased spouse’s date of death, provided the estate was not otherwise required to file a Form 706.

California Inheritance Tax and Gift Tax

California has no inheritance tax. There is no state tax on assets received by a beneficiary, regardless of the relationship to the decedent or the size of the inheritance.

California also has no gift tax. Gifts made during life are not subject to any state-level tax.

At the federal level, gift taxes do apply. The annual gift tax exclusion for 2026 is $19,000 per recipient under IRC §2503(b). A married couple can give up to $38,000 per recipient per year without any gift tax filing requirement. Gifts above that amount are not automatically taxed. They count against the donor’s lifetime exclusion.

The federal gift tax and estate tax share the same $15,000,000 lifetime exclusion. Gifts made above the annual exclusion during life reduce the amount available to shelter the estate at death. For those with large estates, coordinating lifetime gifting with the overall estate plan is worth doing deliberately.

How Proposition 19 Affects Estate Planning in California

California’s Proposition 19, effective February 16, 2021, changed how inherited real estate is treated for property tax purposes. Before Prop 19, children could inherit a parent’s primary residence and most other real property while keeping the parent’s lower assessed value indefinitely. That benefit is now limited.

Under Prop 19, the parent-child exclusion from property tax reassessment applies only to a primary residence, and only if the child uses the property as their primary residence within 12 months of inheriting it. Even then, the exclusion is capped: if the fair market value exceeds the parent’s assessed value by more than $1,000,000, the excess is added to the new assessed value. Vacation homes, rental properties, and commercial real estate are fully reassessed at current market value at death.

Consider a family that inherited a beach property their parents purchased decades ago for $200,000. The property is now worth $3,000,000 but carries a Prop 13 assessed value of $250,000. Under the old rules, the children could have kept that $250,000 assessed value. Under Prop 19, because it is not a primary residence, the property is fully reassessed at $3,000,000. At California’s effective property tax rate of roughly 1.1%, that is an additional $30,250 per year in property taxes.

Prop 19 planning is a subject of its own. For a full breakdown of how it works and strategies to address it, see our article on Proposition 19 and estate planning.

Step-Up in Basis and Community Property Rules

One of the most valuable tax benefits available to California married couples is the community property step-up in basis. Under IRC §1014(b)(6), when one spouse dies, both halves of community property receive a new tax basis equal to the fair market value at the date of death. Unrealized capital gains accumulated during the marriage can be eliminated entirely.

This is a meaningful advantage over common law states, where only the deceased spouse’s half of jointly held property receives a step-up. In California, the surviving spouse’s half gets the step-up too.

The practical impact can be significant. A couple who purchased property for $300,000 that has appreciated to $1,000,000 at the first spouse’s death would receive a new basis of $1,000,000 on the entire property. A sale at that price generates no capital gains tax.

The double step-up applies whether community property is held outright or in a revocable trust, as long as the community property character is preserved under California law. It also applies to community property with right of survivorship (CPWROS) under Cal. Civ. Code §682.1, which passes outside of probate while still qualifying for the full step-up.

Three categories of assets do not receive a step-up in basis. Income in respect of a decedent under IRC §691, such as traditional IRAs and 401(k)s, does not qualify. Appreciated property gifted back to the donor or the donor’s spouse within one year of death also does not receive a step-up. Installment notes and death benefit rights are excluded as well.

For a full breakdown of how capital gains taxes apply when inherited property is sold, see our article on
capital gains tax on inherited property.

Estate Planning Strategies for California Residents

For estates approaching or above the $15,000,000 threshold, working with an estate planning attorney to reduce the taxable estate before death is worth starting sooner rather than later. Several structures are well-suited for California residents, and the right combination depends on the size and composition of the estate.

Spousal Lifetime Access Trust (SLAT): A SLAT allows one spouse to transfer assets out of the taxable estate while the other retains indirect access to the trust. Assets transferred in grow outside the estate, and any appreciation above the exclusion amount is never subject to estate tax.

Grantor Retained Annuity Trust (GRAT): A GRAT transfers future appreciation out of the estate with little or no gift tax cost. The grantor receives annuity payments for a set term, and whatever remains at the end passes to beneficiaries free of estate tax. GRATs work best when the transferred assets are expected to appreciate above the IRS hurdle rate.

Intentionally Defective Grantor Trust (IDGT): An IDGT allows assets to be sold to the trust in exchange for a promissory note. The grantor continues to pay income tax on the trust’s earnings, which further reduces the taxable estate, while the assets grow for the benefit of future generations.

Irrevocable Trust with Family LLC: For business owners, an irrevocable trust coordinated with a family LLC or family limited partnership can provide both estate tax reduction and asset protection. The entity structure allows for valuation discounts on transferred interests, reducing the taxable value of the gift.

Estate planning does not exist in isolation. Clients with significant business interests, real estate holdings, or investment accounts often face complex income tax exposure alongside their estate planning needs. The decisions made in one area directly affect the other. An integrated approach that coordinates estate planning with ongoing tax strategy and entity structure typically produces better outcomes than treating each in isolation.

Ready to review your estate plan? Schedule a consultation with Evolution Tax and Legal to identify the strategies that fit your situation.

Frequently Asked Questions

Does California have an estate tax?

No. California eliminated its state estate tax in 2005. There is no state-level death tax on the value of a California resident’s estate, regardless of size.

What is the federal estate tax exemption for 2026?

The federal basic exclusion amount is $15,000,000 per individual for 2026. The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, made this figure permanent and eliminated the scheduled sunset under the Tax Cuts and Jobs Act. Beginning in 2027, the exclusion adjusts annually for inflation.

Is there an inheritance tax in California?

No. California has no inheritance tax. Beneficiaries who receive assets from a California estate owe nothing to the state on what they inherit, regardless of the amount or relationship to the decedent.

Do I need to file a federal estate tax return?

A federal estate tax return (Form 706) is required if the gross estate exceeds the basic exclusion amount, which is $15,000,000 for 2026. A return may also be filed even when no tax is owed, specifically to elect portability of the deceased spouse’s unused exclusion for the benefit of the surviving spouse.

How does Proposition 19 affect inherited property?

Prop 19, effective February 16, 2021, limits the parent-child exclusion from property tax reassessment. The exclusion now applies only to a primary residence that the child occupies within 12 months of inheriting it, subject to a $1,000,000 cap on the assessed value difference. All other inherited property, including vacation homes, rentals, and commercial real estate, is fully reassessed at current market value at death.

What estate planning strategies reduce federal estate tax?

Common strategies for California residents include Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs), and irrevocable trusts coordinated with family LLC structures. Each transfers assets out of the taxable estate in different ways. The right approach depends on the estate’s size, composition, and planning goals.

Is life insurance included in my taxable estate?

Yes, if you own the policy at death. Life insurance proceeds are includible in the gross estate under IRC §2042, regardless of who the named beneficiary is. For large estates, an Irrevocable Life Insurance Trust (ILIT) removes the policy from the taxable estate entirely by transferring ownership to the trust. The proceeds then pass to beneficiaries outside of the estate, free of federal estate tax.

What is the unlimited marital deduction?

Transfers between U.S. citizen spouses are fully exempt from federal estate tax under IRC §2056. There is no cap on what can pass to a surviving spouse free of tax. The deduction defers the tax, not eliminates it — the full combined estate is subject to tax at the second death, which is why portability planning and lifetime gifting strategies matter even for married couples well below the threshold.

Do California’s community property rules affect federal estate tax?

Indirectly, yes. Community property does not reduce the federal estate tax directly, but it provides a significant capital gains advantage through the double step-up in basis under IRC §1014(b)(6). At the first spouse’s death, both halves of community property receive a new basis equal to fair market value, which can eliminate unrealized capital gains entirely. This is a California-specific benefit that common law states do not offer.

What if I own real estate or assets in multiple states?

California residents who own real property in other states may be subject to that state’s estate or inheritance tax rules. Several states, including Oregon, Washington, and Massachusetts, impose their own estate taxes with exemptions well below the federal $15,000,000 threshold. Ownership of out-of-state property does not reduce California exposure, but it can create an additional filing obligation and tax liability in the other state. Multi-state estate plans require coordination across each relevant jurisdiction.

This article is for informational purposes only and does not constitute legal or tax advice. Tax laws and regulations change frequently and may affect the accuracy of this information. Consult a qualified tax attorney or CPA before making any decisions based on the content of this article.