Taxes are often the last thing on people’s minds after losing a loved one, until they discover that death can come with a price tag. Between the myths about “death taxes” and the complex blend of federal and state tax laws, it’s easy to see why families are confused about what they might owe and who’s on the hook.
In California, confusion is especially common. Many people assume the state imposes its own estate or inheritance tax, but that’s not the case. Still, just because California doesn’t impose state estate taxes doesn’t mean taxes are off the table entirely. Depending on the value of the estate, where the assets are located, and how the estate is structured, income tax, property tax, and capital gains taxes could still come into play, and estate tax comes back into the picture for particularly large estates at the federal level.
This guide breaks down what’s real and what’s not when it comes to estate tax laws in California, including how federal rules apply, how to tell if an estate is taxable, and what families can do to plan ahead.
Let’s start with a common source of confusion: the difference between estate tax and inheritance tax.
In other words, estate tax comes out of the total estate, while inheritance tax is the responsibility of the individual beneficiaries once they receive an inheritance.
Now here’s where California stands out: it has neither. There’s no estate tax and no inheritance tax at the state level in California. But don’t breathe a sigh of relief just yet; there’s still the federal estate tax, which can apply to high-value estates regardless of what state you’re in, and inheritance taxes are state-specific, so a beneficiary who resides outside of California may have inheritance taxes imposed by their own state, even on an inheritance from a California estate. Additionally, beneficiaries who are non-U.S. citizens are subject to different inheritance and estate tax rules than U.S. Citizens.
The good news: for most families, the federal estate tax won’t apply. As of 2025, the federal exemption is set at $13.99 million per individual, or $27.98 million for married couples. After taking into consideration any taxable lifetime gifting made (which reduces the estate tax exemption available), if the estate is valued under that threshold, there’s no federal estate tax.
NOTE: The Estate Tax Exemption amount is scheduled to increase to $15 million per individual, and $30 million for married couples in 2026.
But if it’s over that amount, the IRS will take a cut, up to 40% of the amount above the exemption. Let’s say an individual dies in 2025 with an estate worth $16.9 million. That amount is $3 million over the exemption. The federal estate tax isn’t applied in one simple step, however. First, the total value of the estate is calculated, then certain deductions and adjustments are made to determine the “Taxable Estate.” Lifetime taxable gifts are added in, and the available unified credit is subtracted. Any remaining amount is taxed at up to 40%. Strategic planning can often reduce how much of an estate ends up subject to that tax.
Not everything you own is automatically taxed at death. The gross estate includes:
From there, the estate can deduct:
What’s left is the taxable estate. If it exceeds the federal exemption, then Federal Estate Taxes may be owed.
Many Californians are surprised to learn that the state doesn’t tax estates or inheritances. Why the confusion?
For one, California does have some of the highest income and property taxes in the country, so people assume estate taxes are part of the picture. Second, there used to be a state estate tax, but it was eliminated after changes to federal law in 2005.
The term “death tax” also gets thrown around in political discussions, which adds to the misunderstanding. But as of now:
However, if someone who lives in California owns property in another state or country, or a beneficiary lives outside of California, local laws in those jurisdictions could still trigger estate or inheritance taxes. International assets, and non-U.S. citizen beneficiaries or fiduciaries, in particular, can complicate things.
When the federal estate tax applies, it’s the Administrator of the Estate (whether that is the Trustee of the Trust or the Executor of the estate) who is responsible for filing the return and paying the tax from estate funds. Beneficiaries (and, in intestate situations, legal heirs) don’t pay the estate tax directly; instead, they receive what’s left after the tax is paid.
Inheritance tax, which California does not have, works differently. In states that do have it (like Pennsylvania or Nebraska), the individuals receiving property, whether heirs under intestate succession or named beneficiaries under a will or trust, may owe tax based on what they receive and their relationship to the deceased.
If your estate is well under the $13.9 million threshold, federal estate tax planning might not be a top concern. But for high-net-worth individuals, there are several legal tools to help reduce exposure to the federal estate tax.
The key to these strategies is timing, since they usually need to be set up well in advance of death. Trying to reduce taxes retroactively doesn’t work.
Even if your estate isn’t large enough to trigger federal estate tax, planning ahead still matters. Poor planning can lead to other headaches, like disputes among heirs and beneficiaries, court involvement, or delays in distribution.
Here’s what California residents can do to stay prepared:
You prepare for your future by saving for retirement, investing for growth, and building your legacy. Your estate deserves the same care. At Ferguson Law Group, we work with individuals and families to understand estate tax laws in California and develop customized strategies that protect what you’ve built. Our legal team helps you navigate the complexities of federal and state laws so your legacy stays secure and your beneficiaries receive what you intended.
Want to protect your assets and provide for your loved ones? Contact our experienced estate planning attorneys today to start planning with a strong foundation.
No, California does not have an inheritance or estate tax, so you won’t owe state estate taxes on inherited property, though federal estate taxes may apply for large estates.
The federal estate tax exemption for 2025 is $13.99 million per individual.
You can reduce estate taxes through strategies like lifetime gifting, setting up irrevocable trusts, making charitable donations, and using portability elections between spouses.
