Does California have an estate tax? The short answer is no—California doesn’t impose a state-level estate tax, which is great news for residents and those planning their estates. However, this doesn’t mean your heirs are completely off the hook when it comes to federal taxes, and understanding the full picture is crucial for smart estate planning.
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California Has No State Estate Tax
Let’s get straight to it: California does not have a state estate tax. This puts California in a favorable position compared to states like New Jersey, which does impose an estate tax. California residents don’t need to worry about their state government taking a cut of their estates when they pass away.
This is one of the reasons California remains attractive to high-net-worth individuals and retirees. You won’t see a line item on your state tax return for estate taxes, and your heirs won’t face state-level estate tax bills after you’re gone. It’s a straightforward situation—no state estate tax means no state estate tax complications.
Federal Estate Tax Still Applies
Here’s where things get more complicated: while California doesn’t tax estates, the federal government absolutely does. The IRS imposes a federal estate tax on estates that exceed certain thresholds. This is a critical distinction that many people miss.
The federal estate tax is a tax on the transfer of wealth from one generation to the next. When someone dies, their estate’s total value is calculated. If that value exceeds the federal exemption limit, the excess is subject to federal estate tax at rates up to 40%. This applies to California residents just like it applies to residents of every other state.
Think of it this way: no state tax is a win, but you’re not completely in the clear. You still need to plan around federal taxes, which can be substantial for estates worth millions of dollars.
2024 Federal Exemption Amounts
For 2024, the federal estate tax exemption is $13.61 million per person. This means if your estate is worth $13.61 million or less, you don’t owe any federal estate tax. Married couples can combine their exemptions, bringing the threshold to $27.22 million.
Here’s the catch: this exemption is temporary. Under current law, it’s set to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress extends it. That’s a massive change that could affect your planning.
If you’re close to these thresholds, you need to act now. Many high-net-worth Californians are accelerating their estate planning strategies before the exemption sunsets. This might include gifting strategies, trust structures, or other techniques to lock in the current exemption amounts.
Inheritance Tax vs. Estate Tax
Here’s a common source of confusion: inheritance tax and estate tax are different things. California has neither, but it’s important to know the distinction.
An estate tax is paid by the estate itself before assets are distributed to heirs. An inheritance tax is paid by the heirs based on what they receive. A few states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) have inheritance taxes, but California is not one of them.
So your heirs won’t face California inheritance taxes either. This is another advantage for California families. However, your heirs may still owe federal income tax on certain inherited assets, particularly if those assets generate income (like rental properties or investment accounts).
California-Specific Estate Rules
While California doesn’t tax estates, the state does have specific rules about how estates are handled. California uses a probate system that can be lengthy and expensive, which is why many people set up trusts.
If your estate goes through probate in California, it’s subject to court fees and attorney fees based on the estate’s value. This isn’t a tax, but it’s a real cost that reduces what your heirs receive. Estates worth $166,250 or more typically go through formal probate unless the assets are held in a trust or other probate-avoiding structure.
When you handle California tax matters, including estate-related issues, you’ll want to understand these probate rules. Many California residents work with estate planners specifically to avoid probate through trusts and other mechanisms.
Estate Planning Strategies
Since California has no state estate tax but federal estate tax is still a concern, smart planning focuses on the federal level. Here are key strategies:
Revocable Living Trusts: These allow you to avoid probate while maintaining control during your lifetime. Assets in a trust pass directly to beneficiaries without court involvement.
Irrevocable Life Insurance Trusts (ILITs): Life insurance proceeds can be excluded from your taxable estate if held in an ILIT, potentially saving significant federal estate tax.
Annual Gifting: You can gift up to $18,000 per person per year (in 2024) without using any of your lifetime exemption. Married couples can gift $36,000 per recipient annually.
Spousal Lifetime Access Trusts (SLATs): These complex strategies allow married couples to leverage both exemptions while maintaining some access to funds.
Charitable Giving Strategies: Charitable remainder trusts and donor-advised funds can reduce your taxable estate while supporting causes you care about.
Married Couples & Portability
If you’re married, you have a significant advantage: portability. When the first spouse dies, their unused exemption can be transferred to the surviving spouse, effectively doubling the exemption for the surviving spouse’s estate.
For 2024, this means a married couple could have $27.22 million in combined exemptions. However, portability doesn’t happen automatically. You must file a federal estate tax return (Form 706) within nine months of the first spouse’s death, even if no tax is owed, to preserve the unused exemption.
This is where many people slip up. They assume no tax return is needed because the estate is below the threshold, but filing is necessary to protect the surviving spouse’s exemption. It’s a critical detail that a good estate attorney will handle.
When to Hire an Estate Attorney
You should consider working with an estate planning attorney if:
- Your estate is worth more than $5 million
- You own real estate in multiple states
- You have minor children and need to name guardians
- You own a business
- You want to minimize probate costs
- You’re married and want to optimize spousal exemptions
An experienced estate attorney in California can help you structure your affairs to take advantage of the lack of state estate tax while protecting you from federal taxes. They’ll also ensure your documents are properly drafted and executed, which is crucial for validity.
If you’re dealing with complex financial situations, such as understanding how to structure settlement money for tax efficiency, an attorney can coordinate with your tax advisor to create a comprehensive plan.
Frequently Asked Questions
Does California have a state estate tax or inheritance tax?
No. California has neither a state estate tax nor a state inheritance tax. This is one of the most favorable aspects of California’s tax code for estate planning purposes. Your heirs won’t owe any state-level taxes when you pass away, though federal estate tax may still apply if your estate is large enough.
What’s the federal estate tax exemption for 2024?
The federal estate tax exemption for 2024 is $13.61 million per individual or $27.22 million for married couples. This exemption is scheduled to drop to approximately $7 million per person on January 1, 2026, unless Congress extends it. This sunset provision is a major reason many people are updating their estate plans now.
Do I need to file an estate tax return in California?
You don’t need to file a California state estate tax return because California doesn’t have an estate tax. However, you may need to file a federal estate tax return (Form 706) with the IRS if your estate exceeds the federal exemption threshold, or if you’re married and the first spouse dies (to preserve portability benefits).
Will my heirs pay taxes on what they inherit?
Your heirs won’t pay state or federal inheritance taxes in California. However, they may owe federal income tax on income generated by inherited assets (like rental income or investment dividends). Additionally, inherited assets receive a “step-up” in basis, which can minimize capital gains taxes if they sell inherited property soon after inheriting it.
Should I move to California to avoid estate taxes?
While California’s lack of state estate tax is attractive, it shouldn’t be your only reason to move. Consider your overall tax situation, including income taxes, property taxes, and cost of living. California’s state income tax is relatively high, which may offset the estate tax savings. Work with a tax professional to evaluate whether a move makes sense for your specific situation.
What’s the difference between a revocable and irrevocable trust?
A revocable trust allows you to make changes and maintain control during your lifetime. It avoids probate but doesn’t reduce your taxable estate. An irrevocable trust removes assets from your estate, reducing federal estate tax exposure, but you can’t easily change or revoke it. Each has different uses depending on your goals.
Is portability automatic for married couples?
No. Portability requires filing a federal estate tax return (Form 706) within nine months of the first spouse’s death, even if no tax is owed. Without this filing, the unused exemption is lost. This is a critical step that many families miss, so work with an estate attorney to ensure it’s handled correctly.
The Bottom Line on California Estate Taxes
California’s lack of a state estate tax is genuinely good news for residents. You won’t face state-level estate taxes when you pass away, and your heirs won’t owe state inheritance taxes. This puts California ahead of several other states in terms of estate tax burden.
However, don’t let this advantage lull you into thinking you don’t need estate planning. Federal estate taxes, probate costs, and income tax considerations on inherited assets are all real concerns. The key is to work with qualified professionals—estate attorneys, tax advisors, and financial planners—to create a comprehensive strategy that takes advantage of California’s favorable tax environment while protecting your family from federal taxes.
With the federal estate tax exemption set to drop significantly in 2026, now is the time to review and update your estate plan. Whether you need a simple will or a complex trust structure, the investment in proper planning will pay dividends for your heirs.
