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California Estate Tax

Figuring out estate tax in California can be confusing. We’ll break down how to avoid death tax in California, how much is inheritance tax in California and dealing with state estate tax.

Table of contents

Key Takeaways:...Read more

What is estate tax?...Read more

Does California have an estate tax?...Read more

Estate tax forms...Read more

How to avoid death tax in California?...Read more

How much is inheritance tax in California?...Read more

Key Takeaways:

California does not have a California estate tax, regardless of estate size.
Federal estate tax rules still apply, with an exemption limit of $13.61 million for 2024 for single filers.
Apart from the death tax, California also does not have inheritance tax.

What is estate tax?

Estate tax is a tax on the total value of your assets at the time of your death, including your home, savings and investments, if their value exceeds a certain limit. It's important to differentiate this from inheritance tax. Inheritance tax is paid by the heirs based on the assets they receive from the estate. There is no inheritance tax in California, meaning your heirs will not face a tax on the assets they inherit from you. However, you should be aware of the death tax in California, also known as estate tax, which applies if the value of your estate surpasses a certain threshold. It’s important for estate planning to manage both the California death tax and any potential inheritance tax in other states, where different rules may apply.

Does California have an estate tax?

California does not have a state estate tax. This means that when you pass away, your estate isn't subject to a state-level estate tax in California. Instead, your estate would be subject to federal estate tax rules if its value exceeds the federal exemption limit. As of 2024, the federal estate tax applies to estates valued at $13.61 million or more, up from $12.92 million in 2023. For married couples, there is “full portability” of the federal estate tax exemption. This means that if both spouses pass away, their combined exemption can avoid federal estate tax on estates valued up to $27.22 million. So, does California have an estate tax? No, it does not. After January 1, 2005, the IRS stopped allowing the state death tax credit, so you don't need to file a California estate tax return if the person died after December 31, 2004. California is known for its high taxes. While the state doesn’t have an estate tax, residents face significant income taxes, ranging from 1% to 13.53%. There’s also an extra 1% surcharge on income over $1.1 million, pushing the top rate to 14.63%, which is the highest in the country. Sales tax in California is 7.25% statewide, but local rates can add up to 3.25% more. Property taxes are lower, averaging around 0.75%, but overall, the tax burden in California is still quite heavy.

Infographic entitled States With Estate Tax listing US states that collect state estate tax.

Estate tax forms

When dealing with estate taxes, the primary form you’ll need is Form 706, or the “United States Estate (and Generation-Skipping Transfer) Tax Return.” This form is essential for reporting the value of the deceased’s estate and determining if any federal estate tax is owed. Filling out Form 706 can be detailed. You’ll need to list all assets, including their home, bank accounts, investments and personal items. Be sure to include deductions for things like debts, funeral costs and charitable donations, which can reduce the taxable value of the estate. If the estate is below the federal exemption limit—$13.61 million for 2024—you might not need to file, but it’s always good to double-check. Although California does not impose a California death tax or a California state estate tax, handling the federal forms correctly is still something you have to do correctly. If the estate includes property in other states or has complex aspects, you might need additional forms or schedules. You can always hire a CPA to help you with this.

How to avoid death tax in California?

Even though there is no death tax in California or a CA state estate tax, you might still want to manage and reduce any potential tax impact on your estate. Here’s how you can do it effectively. First, make the most of the federal estate tax exemption. In 2024, this exemption is $13.61 million per person. If your estate is below this amount, you won’t face federal estate tax. For married couples, the exemption can be as high as $27.22 million if both spouses pass away. Using tools like wills and trusts can help you plan your estate to take full advantage of this exemption. Another useful strategy is to use annual gift exclusions. You can gift up to $18,000 per year to each person without it affecting your lifetime exemption. This can gradually reduce the size of your estate. You could also set up irrevocable trusts. These trusts transfer assets out of your estate, which can help lower its taxable value. Charitable donations can also help; by leaving part of your estate to charity, you can benefit from deductions that reduce the taxable amount. Lastly, it’s a good idea to work with an estate planning attorney or tax professional. They can help you understand the details and make sure you’re following current laws. This way, you can manage your estate smartly and avoid any unnecessary tax issues.

How much is inheritance tax in California?

There is no inheritance tax in California. This means that if you inherit assets from a relative or loved one, you won't need to pay a state-level tax on those assets. California doesn’t impose any form of inheritance tax, so you can receive your inheritance without worrying about additional state taxes. However, it's important to note that while there’s no inheritance tax in California, the estate itself might still be subject to federal estate tax if it’s large enough. For 2024, the federal estate tax applies to estates valued at $13.61 million or more. If the estate exceeds this threshold, the excess could be taxed at federal rates, but this tax is handled by the estate before you receive your inheritance. Additionally, if you inherit assets from someone in a state with its own inheritance tax, you may need to comply with those state laws. Even though California doesn’t have a CA state estate tax or California state estate tax, it's still a good idea to consult with a professional. They can help you with the rules and understand how they apply to your situation. Big life changes—like getting married, having a baby, or changes in your income—mean it's time to update your estate plan. It’s a good idea to regularly check in on your plan to make sure it still fits your life and what you want for the future.

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