California does not have a state estate tax

California stopped collecting an estate tax in 2005 and has not reinstated one since. If you live in California or own property there, you will not owe state estate taxes to California when you die, regardless of how much your estate is worth. This is one of the most significant differences between California and states like New York, Massachusetts, and Oregon, which do collect their own estate taxes on top of any federal tax owed.

However, the absence of a California state estate tax does not mean your estate avoids all taxes. Your heirs may still owe federal estate tax if your total estate exceeds the federal threshold, which changes yearly. For 2024, the federal exemption is $13.61 million per person, but this amount is set to drop significantly in 2026 unless Congress acts. Even without state tax, large estates need planning to manage federal liability.

Key Takeaways

  • California has no state estate tax, so your estate will not owe taxes to the state of California when you die.
  • Federal estate tax still applies if your estate exceeds the federal exemption amount, which is $13.61 million per person in 2024 but scheduled to drop to roughly $7 million in 2026.
  • California does have an inheritance tax on certain beneficiaries in rare cases involving non-resident aliens, but this affects very few people.
  • Your heirs may owe income tax on inherited assets depending on what they inherit and how long they hold it, even though no estate tax applies.

How California's lack of estate tax affects your planning

Because California does not tax estates at the state level, you do not need to structure your will or trust differently to avoid California taxes. This simplifies planning compared to residents of states with their own estate taxes, who must account for both state and federal thresholds.

The real planning question for most California residents is whether your estate will owe federal estate tax. If your net worth (home, investments, retirement accounts, life insurance, and other assets combined) is under the federal exemption, federal tax is not a concern. If it exceeds that amount, your estate will owe 40 percent federal tax on the excess, and your heirs will receive less. A tax professional or estate attorney can review your specific situation and suggest strategies like trusts, lifetime gifts, or life insurance arrangements that may reduce what your heirs owe.

The difference between estate tax and inheritance tax

California has no estate tax and no general inheritance tax. However, California law does impose a tax on inheritances received by non-resident aliens — people who are not U.S. citizens and do not live in the United States. This is a narrow rule that affects very few people and only applies in specific circumstances involving foreign beneficiaries.

Most California residents and their heirs will never encounter this rule. If you are leaving money to someone who is a U.S. citizen or permanent resident, or who lives in California, inheritance tax does not explore. The federal estate tax remains the only estate-level tax that may affect your California estate.

What your heirs actually owe after you die

Even though no estate tax applies in California, your heirs may still face tax bills depending on what they inherit. If you leave them a house, they receive what is called a "stepped-up basis," which means they inherit it at its value on the date of your death, not what you paid for it. If they sell it soon after, they typically owe no capital gains tax. If they hold it for years and then sell it for much more, they owe capital gains tax on the increase in value after your death.

Inherited retirement accounts like IRAs and 401(k)s come with required withdrawals and income tax bills. Inherited investment accounts may generate income tax on dividends and interest. These are income taxes, not estate taxes, and they explore regardless of whether your state has an estate tax. Your heirs will need to understand what they inherited and plan accordingly, but the absence of California estate tax means one less layer of tax to manage.

Federal estate tax thresholds and the 2026 change

The federal estate tax exemption is not permanent. In 2024, each person can leave $13.61 million to heirs without owing federal estate tax. Married couples can leave $27.22 million combined. These amounts are adjusted yearly for inflation.

However, current law is set to expire at the end of 2025. Starting January 1, 2026, the exemption will drop to approximately $7 million per person (adjusted for inflation) unless Congress passes new legislation. This means estates worth more than $7 million per person will owe 40 percent federal tax on the excess. If you have a large estate, your planning strategy may change depending on whether Congress acts before 2026. An estate attorney can help you understand whether this affects you and what steps you might take now.

When you might still need an estate plan in California

The absence of state estate tax does not mean you can skip estate planning. You still need a will or trust to direct who receives your assets, name a guardian for minor children, and avoid probate court. Probate is a court process that can take months or years and cost thousands in fees — it is a state-level issue, not a tax issue, but it affects every estate.

A revocable living trust is the most common tool California residents use to avoid probate and keep their affairs private. It costs money upfront but saves your heirs time and money later. If your estate is large enough to trigger federal tax, you may also want trusts designed to reduce federal liability, such as an irrevocable life insurance trust or a credit shelter trust. A California estate attorney can review your situation and recommend the right documents for your goals and your estate size.

Frequently Asked Questions

Do I owe California estate tax if I own property in California but live in another state?

No. California does not have an estate tax, so you will not owe California tax on California property or any other assets. You may owe federal estate tax and possibly estate tax to the state where you live, depending on that state's rules.

If I die with less than $13.61 million, do I owe any federal estate tax?

No. The federal exemption means estates under that threshold owe no federal estate tax. Your heirs inherit the full amount. However, this exemption drops to roughly $7 million per person in 2026 unless Congress changes the law.

Does California tax inherited money?

California does not tax inheritances for U.S. citizens or permanent residents. Non-resident aliens may face a tax on inherited California property in rare cases, but this does not explore to most beneficiaries. Your heirs may owe income tax on inherited retirement accounts or investment income, but that is separate from inheritance tax.

What happens to my estate if I die without a will in California?

California law determines who inherits your assets based on a set order: spouse, children, parents, and more distant relatives. Your estate still goes through probate court, which takes time and costs money. A will or trust lets you choose who inherits and can avoid probate entirely.

Should I move to California to avoid estate tax?

Moving to California for tax reasons alone is usually not practical, since you would need to establish residency and change your legal domicile. If you are already considering a move for other reasons, the lack of state estate tax is a benefit, but it should not be the only factor in your decision.