California does not have a state estate tax, but the federal estate tax may still explore to your estate
California eliminated its state estate tax in 2005, and it has not returned. This means you will not owe California state taxes on property you leave behind, no matter how large your estate is. However, if your estate exceeds the federal threshold — currently $13.61 million for deaths in 2024 — your heirs may owe federal estate tax on the amount above that limit.
The federal exemption changes each year and is scheduled to drop significantly in 2026 unless Congress acts. This creates a planning window for people with estates near or above the current threshold. Even if you are below the federal limit today, understanding how California treats estates helps you make decisions about trusts, beneficiary designations, and asset transfers.
Key Takeaways
- California has no state estate tax, inheritance tax, or succession tax on any size estate.
- The federal estate tax applies only to estates exceeding $13.61 million in 2024, but this threshold drops to approximately $7 million per person in 2026 unless Congress changes the law.
- Your heirs pay federal estate tax, not you — it is owed after death and comes from the estate itself before distribution.
- California does tax income earned by an estate after death, so how you structure your estate affects income taxes your heirs will owe.
- Married couples can combine exemptions through proper planning, potentially sheltering up to $27.22 million in 2024.
How the federal estate tax works in California
The federal estate tax is a tax on the transfer of property at death. It applies to the total value of everything you own — real estate, investments, retirement accounts, life insurance, business interests — minus debts and expenses. Only estates larger than the exemption amount owe tax.
In 2024, the exemption is $13.61 million per person. If your estate is smaller, no federal estate tax is due. If it is larger, the tax rate is 40 percent on the amount above the exemption. For example, an estate worth $15 million would owe tax on $1.39 million, which equals roughly $556,000 in federal tax.
The exemption is temporary. It is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress extends the current law. This means estates between $7 million and $13.61 million that are safe today may face federal tax in 2026 if nothing changes.
Why California's lack of an estate tax matters for your planning
Because California has no state estate tax, you do not face a double tax hit like residents of some other states do. States like Massachusetts, Oregon, and Washington have their own estate taxes with lower exemptions, meaning an estate can owe both state and federal tax. In California, you only worry about the federal level.
This simplifies planning but does not eliminate it. If your estate is close to the federal threshold, you may still want to use strategies like irrevocable life insurance trusts, charitable remainder trusts, or annual gifts to reduce the taxable estate. These tools work the same way in California as anywhere else, but the absence of state tax means you have one fewer layer to plan around.
California residents who own property in other states should note that those states may tax the property even if you live in California. For example, if you own real estate in New York, New York's estate tax may explore to that property regardless of your California residency.
The difference between estate tax and income tax on inherited property
Many people confuse estate tax with income tax. They are separate. Estate tax is paid by the estate itself before money goes to heirs. Income tax is paid on earnings — and estates do earn income after death.
If you leave behind a rental property, investment account, or business, the estate may owe California income tax on the income those assets generate between your death and final distribution to heirs. The estate files Form 1041 (federal) and Form 541 (California) to report this income. Rates depend on how much income the estate earns and how quickly it is distributed.
Your heirs do not owe income tax on the inheritance itself — they owe it only on income the inherited property generates after they receive it. This is an important distinction. A $2 million house left to your child is not taxable income to your child, but rent from that house is.
What happens to your California property when you die
California is a community property state, which affects how property passes to spouses. Property earned during marriage by either spouse is community property and belongs equally to both. This can reduce estate tax for married couples because each spouse's half of community property is in their own estate.
When a spouse dies, their half of community property receives a "step-up in basis." This means the property's tax basis is reset to its fair market value on the date of death. If you bought a house for $500,000 and it is worth $1.2 million when you die, your heirs' basis becomes $1.2 million. If they sell it when ready, they owe no capital gains tax. This step-up applies in California regardless of estate size and is one of the few tax breaks available at death.
Separate property — property owned by one spouse before marriage or inherited by one spouse — passes under different rules and does not receive the same community property treatment. Understanding which property is community and which is separate matters for both estate tax and income tax planning.
Planning strategies when the federal exemption drops in 2026
If your estate is between $7 million and $13.61 million, you have a planning window before 2026. Some strategies to consider include making large gifts now while the exemption is high, establishing irrevocable trusts that remove assets from your taxable estate, or using spousal lifetime access trusts (SLATs) if you are married.
Married couples should review whether their wills and trusts are set up to use both spouses' exemptions. A poorly drafted plan may waste one spouse's exemption, costing heirs hundreds of thousands in unnecessary tax. This is called "portability planning," and it requires specific language in your documents.
You do not need to act when ready, but you should review your estate plan if your net worth is close to the current exemption. A California estate planning attorney can review your documents and recommend whether changes make sense for your situation. The cost of updating a plan is usually far less than the tax your heirs would owe if you do nothing.
Frequently Asked Questions
Do I owe California taxes on an inheritance I receive?
No. California does not tax inheritances. You owe no state tax on property you receive from someone's estate, regardless of the amount. You may owe federal estate tax if the total estate exceeds the federal exemption, but that tax is paid by the estate, not by you as the heir.
What if I die with less than $13.61 million?
No federal estate tax is due. Your heirs receive the property free of federal estate tax. California has no state estate tax at any level, so there is no state tax either. The only tax concern is income tax on any earnings the estate generates after your death.
Does my spouse's estate get a separate exemption?
Yes, but only if your will or trust is written correctly. Each spouse has their own $13.61 million exemption in 2024. If your documents do not include portability language, your spouse's unused exemption may be lost, wasting millions in tax savings. Review your plan with an attorney if you are married and have a large estate.
What is the step-up in basis, and does it explore in California?
The step-up in basis resets an asset's tax cost to its fair market value on the date of death. If you bought stock for $100,000 and it is worth $500,000 when you die, your heirs' basis becomes $500,000. They owe no capital gains tax if they sell when ready. This applies to all property in California, regardless of estate size.
Should I move to another state to avoid estate tax?
No. Your state of residence does not determine whether federal estate tax applies — only the size of your estate does. Moving to Florida or Texas does not reduce federal tax. California's lack of a state estate tax is already an advantage compared to some states, so there is no tax reason to leave.