Estate Planning for Santa Barbara HNW

Short answer – For Santa Barbara families with large estates, estate planning starts with the federal estate tax, because California has none (Rev. & Tax. Code §13301). Each person can pass $15,000,000 free of federal estate and gift tax in 2026, and amounts above the exclusion are taxed at up to 40 percent (26 U.S.C. §§2001(c), 2010(c)(3)). A married couple can shelter twice that, but only if the first spouse’s estate files a timely return electing portability (26 U.S.C. §2010(c)(5)(A)). Property tax on the family home under Proposition 19 and income tax basis at death often matter as much as the estate tax.

A funded living trust keeps a Santa Barbara estate out of probate. It doesn’t answer the tax questions. A home that has appreciated for decades affects the federal estate tax calculation, the heirs’ income tax basis, and the property tax a child pays after inheriting, and each of those needs its own planning.

Law verified against 26 U.S.C. §§1014, 2001, 2010, 2042, 2056, 2503, and 2631; Revenue and Taxation Code §§13301, 62, and 63.2; Family Code §760; and Probate Code §§4124, 4671, 10810, 15300, and 15301, 2026. General information only, not legal advice for your situation.

Whether the federal estate tax reaches a Santa Barbara estate

The federal basic exclusion amount is $15,000,000 for 2026, adjusted for inflation starting in 2027 (26 U.S.C. §2010(c)(3)). Taxable estates above the exclusion reach the top rate of 40 percent (26 U.S.C. §2001(c)). California doesn’t add a state estate, inheritance, or gift tax (Rev. & Tax. Code §13301).

For a married couple, the first death usually produces no tax, because property passing to a surviving spouse is deducted from the taxable estate (26 U.S.C. §2056(a)). The surviving spouse can add the deceased spouse’s unused exclusion to their own (26 U.S.C. §2010(c)(4)), but the election must be made on a timely filed estate tax return for the first spouse, and once made it’s irrevocable (26 U.S.C. §2010(c)(5)(A)). Families skip that return because no tax is due, and the unused exclusion is lost. See estate tax portability in California.

My Santa Barbara estate tax planning page covers the lifetime strategies in more depth.

The family home raises basis and property tax questions that can matter as much as the estate tax

Income tax basis: the community property advantage

For a Santa Barbara home bought decades ago, the first death can erase most of the built-in capital gain on both halves. Property acquired during marriage by a married person domiciled in California is community property, unless a statute says otherwise (Fam. Code §760). Property acquired from a decedent generally takes a basis equal to fair market value at death (26 U.S.C. §1014(a)). For community property, the surviving spouse’s half also gets that new basis, as long as at least half of the community interest was included in the deceased spouse’s estate (26 U.S.C. §1014(b)(6)).

How the property is titled, and whether it’s documented as community property in your trust, decides whether the surviving spouse gets that result.

Property tax: Proposition 19 and the family home

Putting your home into your revocable trust doesn’t trigger reassessment. A transfer into a trust isn’t a change in ownership while the transferor is the present beneficiary or the trust is revocable (Rev. & Tax. Code §62(d)).

When a child inherits the home, Proposition 19 excludes a parent-to-child transfer from reassessment only if the home was the parent’s principal residence and becomes the child’s principal residence within one year, and the child files for the homeowners’ or disabled veterans’ exemption within a year (Rev. & Tax. Code §63.2(a)(1)). Even then, if the home’s market value exceeds its taxable value plus the $1,000,000 amount in the statute, the excess is added to the child’s new assessed value (Rev. & Tax. Code §63.2(d)). The exclusion requires a claim filed with the assessor (Rev. & Tax. Code §63.2(b)), here the Santa Barbara County Assessor.

A child who keeps the house as a rental or second home doesn’t meet the principal residence requirement, so the home is reassessed to market value. Decide who gets the house with that rule in mind.

Gifts and life insurance both change what is in the taxable estate

Lifetime gifts and generation-skipping

Larger gifts use part of the $15,000,000 exclusion but remove future appreciation from your estate. Gifts of present interests up to the annual exclusion amount per recipient don’t count against your lifetime exclusion, and the $10,000 base in the statute is indexed for inflation (26 U.S.C. §2503(b)). My 2026 gift tax guide has the current figures.

Gifts to grandchildren or to long-term trusts also trigger the generation-skipping transfer tax. Each person’s GST exemption equals the basic exclusion amount (26 U.S.C. §2631(c)), so a well-funded couple can set aside a large sum for grandchildren and later generations in a dynasty trust.

Life insurance is part of the taxable estate

A large policy can push an estate over the exclusion, and an irrevocable life insurance trust that owns the policy is the usual fix. Life insurance proceeds are included in your gross estate if they’re payable to your estate, or if you held any incident of ownership in the policy at death, such as the right to change the beneficiary (26 U.S.C. §2042).

The core documents still come first

• Revocable living trust. California’s statutory probate fees are charged on the gross value of the estate without subtracting mortgages (Prob. Code §10810(a), (b)). On a high-value estate that’s a large number, and a funded trust avoids it. See my Santa Barbara living trust page.
• Durable power of attorney. A power of attorney is durable when it states that it isn’t affected by the principal’s later incapacity, or similar words (Prob. Code §4124). Without one, assets outside the trust can freeze if you’re incapacitated.
• Advance health care directive. An adult with capacity may execute a power of attorney for health care naming an agent and giving instructions (Prob. Code §4671(a)).
• Beneficiary designations. Retirement accounts and life insurance pass by designation. Review them whenever the trust changes.

Protecting what your heirs receive

An outright inheritance becomes your child’s property, exposed to the child’s creditors and to a divorce. Leaving it in trust with a spendthrift clause keeps a beneficiary’s interest from being transferred or reached by a money judgment until it’s paid out (Prob. Code §§15300, 15301(a)). For families with substantial estates, lifetime trusts for children are often the better default.

Review the plan when your life or the federal number changes

Review it after any marriage, divorce, birth, death, sale of a business, or large change in net worth, and whenever the federal exclusion changes. The 2026 exclusion is set in the statute and indexed from 2027 on (26 U.S.C. §2010(c)(3)), so your plan should be checked against the number in effect, not the one from when you signed.

Working with me from Santa Barbara

My practice is fully remote. We plan by phone and Zoom, and a mobile notary comes to you for signing. I coordinate with your CPA and financial advisor on the tax pieces. Work at this level is built for each family and quoted in writing before any drafting starts. My high-net-worth estate planning page for Santa Barbara describes how that work is structured.

Frequently asked questions

How often should I review my plan?

Review it after any marriage, divorce, birth, death, sale of a business, or large change in net worth, and whenever the federal exclusion changes.