Estate Planning Guides
Estate Tax in California: What Most Families Actually Pay
California has no state estate tax. No state inheritance tax either. The only estate tax that potentially applies to a California family is the federal estate tax — and in 2026 it only applies to estates above $15 million per person ($30 million for a married couple).
For the vast majority of Orange County families, the answer to “what will I owe in estate tax?” is: nothing. But that does not mean tax planning is irrelevant. The real estate-tax conversation is usually about income taxes and capital gains, not estate tax.
The conversation has shifted. For most California families, the big estate-related tax question is whether your heirs get a step-up in cost basis on your home — not whether they owe estate tax.
California estate & inheritance tax — the simple part
- No California estate tax. The state estate tax (the “pick-up tax”) was effectively eliminated when the federal credit it relied on was repealed. California has not reinstated it.
- No California inheritance tax. California has never had a separate inheritance tax (tax on the recipient). Recipients pay nothing on the inheritance itself.
- Recipients still owe ordinary California income tax on income generated by inherited assets going forward (rental income, dividends, etc.).
Federal estate tax — the only one most Californians might face
The federal estate tax exemption (the “unified credit”) for 2026 is $15 million per person. A married couple, with proper planning, can shelter up to $30 million.
What counts in your “estate” for federal purposes
The estate-tax base is your gross estate — broader than people expect. It includes:
- Real estate (primary residence, vacation properties, rental properties).
- Bank, brokerage, and retirement accounts.
- Life insurance you owned at death (death benefit, not premium).
- Business interests (closely held companies, partnerships, LLCs).
- Personal property (cars, jewelry, art, collectibles).
- Certain gifts made during your lifetime (counts against the same exemption).
- Property held in a revocable living trust (your trust does not shelter you from estate tax).
It does not include property left to a U.S.-citizen spouse (unlimited marital deduction), property left to qualified charities, or certain specific exclusions.
The big income-tax break: step-up in cost basis
For most California families, the more impactful tax issue is not estate tax — it is the step-up in cost basis at death.
When you die, the cost basis of most assets you owned is reset to fair market value as of the date of death. (Internal Revenue Code § 1014.) Your heirs can then sell the asset and pay capital gains tax only on appreciation after your death — not on the appreciation that built up during your lifetime.
An example that comes up constantly in coastal Orange County:
| You sell the house yourself | Your heirs inherit and sell | |
|---|---|---|
| You bought in 1985 for | $200,000 | $200,000 |
| Fair market value at your death | n/a | $2,500,000 |
| Cost basis used for capital-gains calculation | $200,000 | $2,500,000 (stepped-up) |
| Sale price | $2,500,000 | $2,500,000 |
| Capital gain | $2,300,000 | $0 |
| Federal capital-gains tax (20%) | $460,000 | $0 |
This is why a common piece of well-meaning bad advice — “put your kids on the deed now to save on taxes” — is the opposite of what most California families should do. Adding a child as a co-owner during your lifetime gives them your cost basis (no step-up on that portion), often producing a much larger capital-gains bill than estate tax ever would.
When sophisticated estate-tax planning still matters
For specific situations, planning is still important:
- Net worth over $15 million.
- Closely held business interests that could push the estate over the line, even if liquid net worth is below.
- Out-of-state real estate in jurisdictions with their own estate or inheritance tax.
- Non-citizen spouse. The unlimited marital deduction does not apply; specialized planning (QDOT trusts) is needed.
- Substantial life insurance. Properly held, it can be excluded; held the wrong way, it counts.
- Generation-skipping transfers to grandchildren or beyond.
The tools for these situations include irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), and charitable remainder trusts (CRTs). These are specialty tools; not every estate plan needs them.
Frequently asked questions
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If California has no estate tax, why do I keep hearing about “estate planning”?
Because most of estate planning is not about taxes — it is about probate avoidance, control over distributions, protection for minors and vulnerable beneficiaries, healthcare and financial decision-making during incapacity, and family clarity. The tax conversation is usually a small portion of the work.
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Do I have to file a federal estate tax return?
Only if the gross estate exceeds the exemption, or if you want to elect portability (transfer your unused exemption to your surviving spouse). Even non-taxable estates with surviving spouses often file Form 706 just to capture portability.
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What is portability and why does it matter?
When a married person dies, any unused federal estate-tax exemption can be transferred to the surviving spouse if a Form 706 is timely filed. This is huge — it effectively doubles the surviving spouse’s exemption. We file portability returns routinely even for non-taxable estates.
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Does putting assets in a revocable living trust avoid estate tax?
No. Assets in your revocable trust are still yours for tax purposes. The trust avoids probate; it does not avoid estate tax. (Irrevocable trusts are a different tool.)
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What if I gift money to my kids during my lifetime to reduce my estate?
The 2026 annual gift exclusion is $19,000 per recipient per year — gifts under that amount do not count against your lifetime exemption and do not require reporting. Larger gifts use up your unified credit dollar-for-dollar. Lifetime gifting strategies make sense for some families but always need careful tax and basis analysis.