Estate taxes can feel overwhelming—especially when you’re trying to make sense of federal thresholds, property ownership across multiple states, and the impact on your long-term financial goals. Many people aren’t sure which rules apply to them or how their estate might be affected until it’s too late to adjust. That’s why early, informed planning matters.
Whether you’re managing family real estate, preparing to transfer business interests, or dealing with million-dollar estates, tax laws can directly influence how much of your wealth gets passed on. Even modest estates may run into issues if assets are spread across different jurisdictions or if lifetime gifts and insurance policies haven’t been structured carefully.
In this post, we’ll explain how federal estate taxes are calculated, whether California imposes any additional taxes, and how factors like gifting, trusts, and multi-state property ownership come into play. You’ll also learn about available exemptions and strategies to help protect your assets for loved ones, charities, or future generations.
Does California Have an Estate Tax?
Currently, California does not impose its own estate tax, which means heirs or executors are not required to file any additional state-level return beyond the usual procedures for property transfers and final income taxes. This sets California apart from states that do impose a separate levy in addition to federal obligations.
All of the following locations have their own estate taxes: 1
- Illinois
- Hawaii
- Vermont
- Oregon
- New York
- Maine
- District of Columbia
- Rhode Island
- Maryland
- Massachusetts
- Washington
- Minnesota
- Connecticut
California does not impose an estate tax, though past proposals indicate the rules could change. Keeping up with potential policy shifts—ideally with professional guidance—can help you stay prepared. If changes occur, updating your estate plan prevents surprises and protects your assets.
It’s also important to remember that property in other states may still face estate taxes from those regions. Even if you live in California, owning assets elsewhere can mean extra filings and obligations. Knowing the rules where you plan to purchase or hold property helps prevent unexpected costs. Being proactive helps reduce potential issues when managing real estate outside your home state.
Estate Tax vs. Inheritance Tax: Understanding the Difference
These two terms are easy to confuse, but they each refer to distinct liabilities that work in very different ways. An estate tax is typically calculated on the total value of someone’s property before distributions are made to heirs, whereas an inheritance tax applies to individuals receiving assets. States may adopt one system, both, or neither, which makes it helpful to identify local rules affecting your family’s interests.
An estate tax targets the assets of the person who passed away, with the executor settling any payment from the estate’s funds. The federal government applies this tax to large estates, and certain states have their own estate tax laws on top of federal requirements. These charges can reduce what heirs ultimately receive, so clarifying any obligations ahead of time can make the process smoother.
An inheritance tax is charged to individual heirs, and the amount typically varies based on how closely the heir was related to the person who passed away. While California does not impose its own inheritance tax, other states may charge one. You could face extra filings or payments in that jurisdiction if you inherit property elsewhere. This distinction matters most when assets span multiple regions with different rules.
Please Note: While California doesn’t impose an inheritance tax, you may still face tax obligations if inherited property is located in a state that does. To better understand where these taxes apply and how they could affect you or a loved one, check out our California Inheritance Tax Guide.
Federal Estate Tax Rules for California Residents
Although California does not impose its own estate tax, residents with a higher net worth may still be subject to federal estate taxes. The primary consideration is whether the total value of the estate surpasses the current federal estate tax exemption amount. Estates exceeding this threshold can be taxed at the federal level, whereas those below it owe no federal estate tax.
For 2025, the lifetime federal estate tax exemption is $13.99 million per individual ($27.98 million for married couples).2 Married couples can take advantage of a provision called portability, which allows the unused exemption from the first spouse that passes to be added to the surviving spouse’s amount.
The federal estate tax is also progressive, with brackets starting around 18% and rising up to 40% for very large estates.2 The tax applies only to the amount above the exemption, so if your estate is under that threshold, you owe nothing. If you are close to the limit, you might consider lifetime gifts or other strategies to reduce your taxable holdings.
Many Californians with considerable property holdings should consider how planned changes to the federal rules will affect their estate in the future. If the exemption is lowered, individuals who previously fell below the cap might suddenly face a new estate tax liability. Planning ahead, monitoring federal updates, and consulting professionals will help you adapt your plan to keep pace with legislative shifts, especially if you anticipate leaving significant assets to heirs.
Please Note: The current elevated federal exemption amounts were introduced through the Tax Cuts and Jobs Act (TCJA). If Congress does not renew or modify these provisions, the exemption will revert to inflation-adjusted pre-TCJA levels in 2026. In that case, individuals could see their exemption drop to about $7 million, and married couples might have a combined exemption of roughly $14 million. It’s important to keep your estate plan flexible and stay informed about potential legislative changes.3
Strategies to Minimize Federal Estate Taxes
Many families look for ways to transfer assets without triggering significant federal estate taxes, especially as their total property value nears the exemption threshold. Simple strategies such as giving gifts each year can gradually lower the value of an estate that may be subject to taxes. Other methods use more complex structures to transfer ownership while maintaining some level of control. Below are several strategies that can help manage potential tax exposure over time:
Annual Gifting: The annual gift tax exclusion lets you give away a specific amount to any number of recipients each year without affecting your lifetime exemption. By making these gifts consistently, you trim down the size of your estate, which can lower the portion potentially subject to taxation. This approach can be especially useful for individuals who want to share wealth incrementally with children, grandchildren, or other loved ones. For 2025, the annual gift tax exclusion is $19,000 per recipient.4
Lifetime Gift Exemption: Beyond yearly gifting, the federal tax code grants a lifetime exemption, which aligns with the overall estate exemption. Using this allows you to shift a large amount of wealth during your life without immediate gift tax consequences, although it does reduce the exemption available to your estate later. Some families opt to transfer business interests or real estate this way, especially if they anticipate future appreciation.
Irrevocable Trusts: Trusts that cannot be altered or revoked after creation can remove certain assets from your taxable estate. For example, an Irrevocable Life Insurance Trust holds a policy outside the estate, keeping the death benefit out of the final valuation. Other trusts, such as bypass or generation-skipping trusts, can preserve resources for heirs while limiting exposure to taxes on future growth.
Charitable Giving: Donations to qualified nonprofits can lessen your taxable estate and allow you to support organizations that matter to you. Direct gifts to charities, donor-advised funds, or charitable remainder trusts are standard methods. This approach often appeals to individuals who do not intend to transfer certain assets to direct heirs and prefer to back a philanthropic cause.
Direct Payments for Expenses: Another way to reduce estate size is by paying tuition or medical bills for someone else. If payments go straight to the institution or care provider, they do not count toward the annual exclusion. This is a relatively simple method to help loved ones while decreasing the amount that eventually appears in your estate totals.
Family Limited Partnerships (FLPs): An FLP involves placing assets—often real estate or a family business—into a partnership, then transferring limited partnership shares to relatives. The structure can allow for valuation discounts if the transferred shares have restricted rights. It also divides ownership among multiple family members, which can bring the estate’s overall value below key thresholds.
Please Note: The strategies mentioned above only scratch the surface of the options available for managing federal estate taxes. For example, some individuals superfund donor-advised funds by bundling multiple years of contributions, while others rely on specialized irrevocable trusts. Different circumstances call for a tailored approach, and professional guidance can help make sure the right tool(s) are used to support you and your specific needs.
Key Professionals for Your Estate Tax Team
Building a thorough estate tax plan often involves multiple experts who each bring a unique perspective. No single professional can handle every detail, and relying on combined expertise helps make sure you consider all angles. The professionals who play a specific role in managing your assets, meeting legal requirements, and minimizing tax exposure include:
Estate Planning Attorney: An estate planning attorney prepares key legal documents like wills, trusts, and powers of attorney. Their job is to make sure your wishes are clearly laid out and comply with the law, helping to avoid future conflicts or unexpected tax issues. In the context of estate taxes, an attorney can also recommend trust structures—like generation-skipping or irrevocable life insurance trusts—designed to shield assets and preserve wealth for future generations.
Accountant: An accountant (or CPA) tracks your income, expenses, and overall financial position for tax purposes. Regarding estate taxes, they can help calculate potential liabilities, file necessary returns, and stay abreast of changes in federal and state rules. By collaborating with your attorney and financial advisor, an accountant can help identify deduction opportunities, confirm correct valuations, and offer strategies to minimize current and future tax obligations.
Financial Advisor: A financial advisor brings together your investment portfolio, insurance policies, and retirement accounts under a cohesive strategy. Regarding estate taxes, they evaluate how different asset classes may affect your taxable estate and suggest techniques like gifting or charitable contributions to reduce exposure. They can also model “what if” scenarios and help you plan for liquidity so your heirs are not forced to sell assets at inopportune times to cover any tax bills.
California Estate Tax FAQs
While California doesn’t have a state-level estate tax, tax-related questions still arise when assets are passed down. Federal exemption limits and rules for property in other states can both influence what heirs receive. Below are some common questions Californians face when considering their estate plans.
1. What happens if I own property in a state with an estate or inheritance tax?
Owning real estate or other assets across state lines can introduce additional layers of complexity. The laws of the state where the property is located often determine whether estate or inheritance taxes apply, regardless of your primary residence.
If that state imposes estate or inheritance taxes, your estate (or your beneficiaries) might have to file a separate return and pay taxes in that jurisdiction. Collaboration with local professionals can help ensure compliance with all requirements and align your broader estate plan accordingly.
2. When is the best time to start estate planning?
Many people begin estate planning once they have significant assets or family responsibilities, such as buying a home or having children. Early planning allows them to revise documents over time as circumstances change.
Given that life events like marriages, divorces, births, or inheritances can shift your financial picture, periodic reviews are also important. Keeping documents current helps make sure your plan reflects your most recent goals and can help avoid complications if you pass away unexpectedly.
3. How does life insurance factor into my estate?
If you’re the owner of a life insurance policy, the payout can count as part of your taxable estate. This inclusion may push your estate’s value closer to or above the federal exemption, potentially triggering taxes.
Some people use an irrevocable life insurance trust (ILIT) to keep policy proceeds outside their estate, helping control or reduce overall tax exposure. This arrangement can also streamline how the death benefit is distributed to beneficiaries, allowing funds to be allocated according to your wishes.
4. Are retirement accounts like IRAs or 401(k)s subject to estate tax?
Yes. The full value of retirement accounts like IRAs and 401(k)s is included in your gross estate for federal estate tax purposes. This applies even if the funds go directly to named beneficiaries.
While Roth accounts aren’t taxed upon withdrawal, traditional accounts may generate income tax for heirs. If your estate is near or above the exemption limit, thoughtful planning around these accounts can help reduce future tax exposure and administrative complexity.
5. Is there a state death tax credit available in California, or can it be used from another state?
No, California does not offer a state death tax credit, and you cannot apply a credit from another state. Previously, California had a “pickup tax” tied to the federal state death tax credit, but that system ended when the federal credit was phased out in 2005.5
Today, the federal government allows a deduction—not a credit—for any state estate or inheritance taxes that are actually paid. So, if a California resident owns property in another state that does impose estate or inheritance taxes, the estate may be able to deduct those taxes when filing the federal return.
Since tax laws vary by state and can affect out-of-state property, it’s worth speaking with a professional if you own real estate or other taxable assets outside California. They can help you understand which rules apply and how to plan accordingly.
How We Help Californians Navigate Estate Taxes
Estate taxes can make a significant difference in how much of your legacy ultimately reaches the people or causes you care about most. Although California does not currently impose a state-level estate tax, federal rules and out-of-state property laws can still introduce complexity. These considerations often become even more important for families with real estate in multiple states or estates approaching the federal exemption limit.
There are a variety of ways to reduce potential estate tax exposure, from annual gifting to more advanced strategies like irrevocable trusts or charitable giving. Our role is to help you sort through these options, identify which ones align best with your goals, and implement them in a coordinated, manageable way.
We take a comprehensive look at your financial picture—everything from the types of assets you hold to how they may appreciate over time. Our process involves assessing exemption limits, projecting tax liabilities, and factoring in how property held in other states may be treated differently. From there, we can build a detailed plan that includes tax-efficient transfer strategies, liquidity planning, and periodic updates to reflect legislative changes or life transitions.
We also believe that the best estate plans involve collaboration. If you’re already working with an estate planning attorney or tax professional, we’re happy to coordinate efforts to make sure nothing gets overlooked. And if you’re still assembling your team, we can introduce you to trusted professionals who have experience working with clients across California. Bringing these pieces together not only simplifies decision-making but can help you avoid mismatched advice or gaps in your plan.
When you’re ready to move forward, we offer a complimentary consultation to help you clarify your estate planning goals and evaluate your options. Whether you’re just getting started or need help refining an existing plan, we’ll guide you through the process with clear recommendations tailored to your situation. Together, we can put a strategy in place that protects your estate, honors your intentions, and provides you and your loved ones a sense of comfort and security.
Resources:
- https://www.cnbc.com/select/what-is-estate-tax-and-who-pays-it/
- https://www.kiplinger.com/taxes/whats-the-new-estate-tax-exemption
- https://www.lpl.com/content/dam/lpl-www/images/advisor-campaigns/private-wealth/private-wealth-the-sunset-of-the-fed-estate-tax-exemption.pdf
- https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies
- https://www.sco.ca.gov/ardtax_estate_tax.html
