Estate Tax Planning in California: Strategies to Protect Your Legacy
California residents seeking to preserve their wealth for future generations often worry about how the decisions they make will impact taxation for themselves as well as their heirs and beneficiaries. While California does not impose a separate state estate tax, federal estate tax laws still apply to estates exceeding the federal exemption threshold. For very large estates above the threshold, strategic estate tax planning is essential to minimize tax liabilities and ensure a smooth transfer of assets to heirs. Below, we discuss some effective strategies for minimizing estate taxes, with a focus on California-specific considerations. For personalized advice and professional assistance in Los Angeles or the San Gabriel Valley tailored to your specific needs and goals, contact Blasser Law to sit down with an experienced and dedicated Claremont estate planning attorney.
Understanding Estate Taxes in California
Currently, California does not have a state-level estate or inheritance tax. However, the federal estate tax applies to estates valued above the federal estate tax exemption limit, which is $13.61 million per individual in 2024 and $13.9 million in 2025. Married couples can double that exemption amount with proper planning. For large estates, tax planning is an essential component of estate planning, as estates exceeding this threshold are subject to a federal estate tax rate of up to 40%.
Although California residents benefit from the lack of a state estate tax, the high property values and accumulated wealth common in certain areas of Los Angeles and the San Gabriel Valley can push estates above the federal exemption limit. For high-net-worth individuals, careful planning is critical to reduce the tax burden on their estate.
Key Strategies for Minimizing Estate Taxes
1. Establishing Trusts
Trusts are one of the most effective tools for reducing estate tax liability. A trust allows you to transfer assets out of your taxable estate while maintaining control over how those assets are managed and distributed. Some common types of trusts include:
- Revocable Living Trusts: While these do not reduce estate taxes directly, they help avoid probate, streamline asset distribution, and maintain privacy.
- Irrevocable Trusts: Assets placed in an irrevocable trust are removed from your taxable estate, helping to lower your estate’s overall value. Popular options include irrevocable life insurance trusts (ILITs) and grantor retained annuity trusts (GRATs).
- Charitable Trusts: Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) enable you to donate a portion of your estate to charity, reducing taxable estate value while supporting causes you care about.
2. Utilizing Annual Gift Tax Exclusions
The federal gift tax exclusion allows individuals to gift up to $19,000 per recipient annually (as of 2025) without triggering gift taxes or affecting their lifetime estate tax exemption. By making regular gifts to family members or other beneficiaries, you can gradually transfer wealth out of your estate, reducing its taxable value. The gift tax is unified with the estate tax, so amounts gifted over the exclusion amount count against the estate tax exemption described above.
For California residents, gifting can also help shield assets from potential capital gains taxes. For example, transferring highly appreciated assets to a lower-income family member may result in a lower overall tax rate on any future sales of those assets.
3. Leveraging the Marital Deduction
The unlimited marital deduction allows you to transfer assets to your spouse free of estate and gift taxes. Married couples can also utilize portability, a feature of federal tax law that enables a surviving spouse to claim any unused portion of their deceased spouse’s estate tax exemption. By combining exemptions, couples can shelter up to $39.8 million from federal estate taxes (2025 limit).
4. Implementing Family Limited Partnerships (FLPs)
A family limited partnership allows you to transfer ownership of business interests or other assets to family members while retaining control over management decisions. This strategy not only reduces the taxable value of your estate but can also provide asset protection and simplify succession planning.
5. Planning for High-Value Real Estate
California’s real estate market is among the most expensive in the nation, making real property a significant contributor to estate value. Estate planning tools such as qualified personal residence trusts (QPRTs) can help reduce the taxable value of your home. By transferring your residence to a QPRT and retaining the right to live in it for a specified period, you remove the property from your estate while retaining the use of it during your lifetime.
Additional California Considerations
While California does not impose estate or inheritance taxes, state property tax rules under Proposition 13 and Proposition 19 can significantly impact estate planning. Proposition 19, for example, limits the ability to transfer a family home or farm to heirs without reassessment at current market value. Proper planning is essential to mitigate the potential tax consequences of property transfers.
Additionally, California’s high-income tax rates may influence decisions about the timing and structuring of certain asset transfers, particularly for business owners and investors.
Consulting an Estate Planning Attorney
Effective estate tax planning requires a tailored approach that considers both federal tax laws and California’s unique real estate and property tax landscape. Working with an experienced estate planning attorney can help you develop a comprehensive strategy to minimize taxes, protect your assets, and achieve your long-term goals.
At Blasser Law, we help clients in Los Angeles and the San Gabriel Valley navigate the complexities of estate tax planning with personalized solutions. Whether you’re considering establishing a trust, leveraging gifting strategies, or planning for high-value real estate, we can guide you every step of the way. Contact us today to at 877-927-2181 schedule a consultation and secure your family’s financial future.
