Last updated: July 2026

Short answer: California has no state estate tax and no inheritance tax. The only estate tax that applies to California residents is the federal one. In 2026 it reaches only estates above $15 million per person, or $30 million for married couples using portability. Most Bay Area families will owe no estate tax at all. The real planning work in California involves capital gains basis, property tax reassessment under Proposition 19, and keeping trusts current.

Estate tax questions come up constantly in the Bay Area for an understandable reason. Home equity alone pushes many families into eight figures on paper. The good news is that the California estate tax does not exist as a state-level tax today. The planning picture still has traps, though, and the rules changed meaningfully in 2026. This guide walks through what applies, what does not, and where Bay Area families actually lose money to avoidable taxes.

Does California have an estate tax in 2026?

No. California imposes no state estate tax and no inheritance tax, making it one of the majority of states with neither [Source: LegalClarity 2026]. Only the federal estate tax can apply to a California resident’s estate.

California voters repealed the state’s inheritance tax decades ago. Lawmakers have floated proposals for a new California estate tax over the years, but none has become law. Heirs in California also pay no income tax on inherited assets as such, because inheritances are not taxable income. What heirs can owe is tax on income the inherited assets later produce. Selling appreciated assets can also trigger capital gains tax. That is where basis rules become the whole game.

Families comparing state rules for a parent living elsewhere should note one thing. A handful of states, such as Oregon and Washington, tax estates at much lower thresholds. Residency at death matters.

What is the federal estate tax exemption in 2026?

The federal estate and gift tax exemption is $15 million per person in 2026, or $30 million for a married couple [Source: IRS 2026]. The amounts are indexed for inflation going forward. Estates above the exemption pay a top federal rate of 40% on the excess [Source: Kiplinger 2026]. Because there is no California estate tax, this federal exemption is the only estate tax number most Bay Area families need to watch.

The 2026 number is the headline change. Under prior law, the exemption was scheduled to fall by roughly half after 2025. Instead, the One Big Beautiful Bill Act, signed July 4, 2025, made the higher exemption permanent at $15 million [Source: Fidelity 2025]. Inflation indexing stayed in place. Families who rushed to make large gifts before an expected sunset can now plan on a stable baseline. Married couples should still file an estate tax return at the first spouse’s death to elect portability. An unused exemption is only preserved if it is claimed. Coordinating that election with your broader plan is part of the work described on our trust and estate planning page.

What taxes do California heirs actually pay?

For most Bay Area families, the taxes that bite are capital gains tax and property tax, not a California estate tax. Inherited assets generally receive a step-up in basis to fair market value at death [Source: IRS Publication 551]. The step-up erases the capital gain that accrued during the owner’s lifetime.

The step-up is the single most valuable rule in California inheritance planning. A house bought in Cupertino for $180,000 and worth $3 million at death passes with a $3 million basis. Heirs who sell promptly owe little or no capital gains tax. Structures that accidentally forfeit the step-up, like adding a child to title during life, can create six-figure avoidable tax bills.

Property tax is the second trap. Proposition 19 took effect in February 2021. Under it, a child who inherits a parent’s home keeps the parent’s low assessed value only by moving in as a primary residence. Even then, the exclusion is capped at the assessed value plus $1 million [Source: California BOE 2026]. Inherited rental or vacation property is reassessed at market value, which can multiply the annual property tax bill. Weighing whether to keep or sell inherited real estate is now a genuine tax decision. It belongs in the same conversation as income tax strategy, a theme we explore in tax planning versus tax preparation.

How can Bay Area families reduce estate and inheritance taxes?

Start with what we call the Three-Tax Lens. Check every estate decision against the federal estate tax, capital gains basis, and California property tax at the same time. A move that helps one can quietly hurt another.

Annual gifting remains the simplest tool. In 2026 you can give $19,000 per recipient, per year, without touching your lifetime exemption, and a married couple $38,000 per recipient [Source: IRS 2026]. Larger strategies include irrevocable trusts, charitable vehicles, and entity planning for family businesses. These intersect with the compliance work on our business and nonprofit page.

Under the Three-Tax Lens, though, gifting appreciated assets during life carries a hidden cost. Gifted assets keep your old basis, while inherited assets get the step-up. For estates safely under $15 million, holding appreciated assets until death often beats gifting them. For estates above the exemption, the math reverses and lifetime transfers can save 40 cents on the dollar.

A revocable living trust, meanwhile, saves no California estate tax or federal estate tax at all. It keeps your family out of California probate, which is slow and has statutory fees. Each tool answers a different problem. That is why documents drafted a decade ago deserve a fresh read under 2026 law.

When should you involve a tax attorney in estate planning?

Involve a tax attorney when your estate approaches the exemption, or when you hold appreciated real estate or a business. The same is true when an inheritance is already in motion and the tax outcome depends on choices being made now. Estates near the line face a 40% marginal rate on mistakes, the highest cliff in the tax code [Source: Kiplinger 2026].

Executors and trustees also carry personal exposure. Estate tax returns, fiduciary income tax returns, and beneficiary reporting each have deadlines and penalty regimes. The IRS does examine estate valuations. If a notice or examination has already arrived, that is controversy work rather than planning. It sits closer to what we handle in responding to an IRS notice and on the litigation side of the practice.

How Kim & Rosado LLP helps with California estate tax planning

Kim & Rosado LLP approaches estate planning as tax lawyers first. The firm’s partners spent decades as IRS attorneys. Peter Chang and Nicholas Rosado bring that controversy experience to trusts, basis planning, portability elections, and Proposition 19 decisions. They serve families in San Jose, Walnut Creek, and San Francisco. A tax attorney can model your estate under the Three-Tax Lens and coordinate with your financial advisor. The goal is a plan that looks clean on paper and survives an IRS examination. The firm’s trust and estate planning services cover both building the plan and defending it.

Frequently asked questions about the California estate tax

Do I have to pay taxes on money I inherit in California?

Generally no. California has no inheritance tax, and inherited money is not taxable income under federal or state law. Taxes arise later. Interest and dividends the inheritance earns are taxable, and withdrawals from inherited retirement accounts like traditional IRAs are taxed as income. Selling appreciated assets can trigger capital gains tax measured against the stepped-up basis. The distinction matters because heirs sometimes refuse or rush distributions out of tax fear when the receipt itself costs nothing.

Will California add a state estate tax soon?

No one can promise, but nothing is law today. Legislators and advocacy groups have periodically proposed a California estate tax, including past ballot efforts that never qualified or passed. Any future proposal would face the state’s requirement of voter approval to modify the repeal, a high hurdle. Families should plan on current law and keep flexibility in their documents. Revisit the plan whenever a real bill advances rather than reacting to headlines.

What is portability and why does it matter in 2026?

Portability lets a surviving spouse inherit the deceased spouse’s unused federal exemption, potentially preserving the full $30 million combined shelter [Source: IRS 2026]. It is not automatic. The executor must file a federal estate tax return, Form 706, and make the election even when no tax is due. Missing the deadline can waste up to $15 million of exemption. With the 2026 exemption now permanent, portability filings at the first death are the cheapest insurance in estate planning.

Does a living trust reduce estate taxes?

A standard revocable living trust does not reduce estate taxes. Its assets remain fully in your taxable estate because you keep control. What it does is avoid California probate, keep your affairs private, and manage assets smoothly during incapacity, all valuable outcomes. Tax reduction comes from different tools: irrevocable trusts, lifetime gifting within the $19,000 annual exclusion, charitable strategies, and careful basis planning. Confusing the two purposes is one of the most common mistakes attorneys see in self-built plans.

Plan for the taxes that actually apply

The California estate tax is a phantom. Capital gains basis, Proposition 19, and the federal 40% bracket above $15 million are real. Families who plan against the right targets keep more of what they built. If your estate plan predates the 2026 law, or an inheritance is already underway, schedule a consultation. Work with attorneys who plan estates the way the IRS will eventually read them.