High-Net-Worth Estate Planning in California

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

Estate size this page covers: under $15 million for one person, or about $30 million for a married couple who use both exemptions. At that size the federal estate tax usually never applies, and the plan turns on basis, Prop 19 and Prop 13, California income tax, liability and liquidity.

Most people who ask about high-net-worth planning expect a conversation about estate tax. For the large majority it is the wrong conversation. California repealed its own estate tax, and the federal exemption stands at $15 million per person in 2026. An estate of five or ten million is not a federal estate tax problem.

What it usually is: an estate concentrated in a small number of assets that cannot be divided evenly, cannot be sold quickly, are held through entities with their own rules, and will become a public record if they go through probate. Those four problems are worth real money to solve, and none of them are tax.

	What goes wrong	What usually fixes it
Concentration	When most of the value sits in one house, ranch or business, equal shares among children most reliably produce a dispute	Decide in advance: one child takes the asset and the others are equalized, the trust directs a sale by a stated date, or a named child holds an option to buy at appraised value
Liquidity	The estate has value but no cash. A federal estate tax return, if due, is due nine months after death and payable in money.	Arrange liquidity outside the estate, most often life insurance held to stay out of the taxable estate, or decide in advance which asset is sold
Entities	LLC, partnership and corporate documents carry transfer restrictions, consent requirements and buy-sell provisions that generally beat the trust	Read the estate plan and the entity documents side by side and amend the agreement
Privacy	Probate is public: the inventory, the appraisals and who received what	A properly funded revocable trust keeps administration private

Which estate size is this page for?

This page is for California estates under the 2026 federal exemption of $15 million per person, which is about $30 million for a married couple (Rev. Proc. 2025-32). Larger estates face the 40% federal estate tax, and the planning changes.

Concentration, and why equal is not the same as fair

When most of the value sits in one house, one ranch or one business, equal shares among children is the arrangement that most reliably produces a dispute. They want different things. One wants to keep the property, one wants cash, one wants out of the business without feeling shortchanged.

Leaving undivided shares looks even-handed and pushes the decision onto people who have just lost a parent, at the moment they are least able to negotiate with each other. The structures that work make the decision in advance: one child takes the asset and the others are equalized out of other property or insurance, or the trust directs a sale by a stated date, or a named child holds a defined option to buy at appraised value on terms already written down.

The right answer varies. What does not vary is that the owner should make it while they can.

Liquidity, which is a deadline problem

An estate that is almost entirely real property or a closely held business has value but no cash. If a federal estate tax return is due, it is due nine months after death and payable in money. If there are debts, administration costs or an equalizing payment to a sibling, those need funding too.

Without a plan, the asset the family most wanted to keep is the one sold under time pressure in whatever market exists that year. Solving it usually means arranging liquidity outside the estate, most often life insurance held in a way that keeps it out of the taxable estate, or deciding in advance which asset is the one that goes.

Entities, which quietly outrank your estate plan

Where property and businesses are held in LLCs, family partnerships or corporations, those governing documents contain transfer restrictions, consent requirements and buy-sell provisions. On death, they generally control what happens to the interest, and they beat the trust.

Two failures recur across every county I work in. A trust directs a transfer the operating agreement prohibits, producing a deadlock nobody finds until the death that triggers it. Or a buy-sell carries a price set years ago, a fixed figure or an untested formula, that hands a co-owner a valuable interest for a fraction of its worth.

There is a third, quieter one: a buy-sell obliging survivors to purchase the deceased owner’s interest with no funding behind it. The obligation is only worth the money available to honor it, and without insurance or a reserve the family ends up negotiating instead of being paid.

The fix is to read the estate plan and the entity documents side by side and amend the agreement, rather than drafting a trust around a document that will win anyway.

The Supreme Court showed what the structure of a buy-sell can cost in Connelly v. United States (2024) 602 U.S. 257. Two brothers owned a building supply company, and the company held life insurance on each of them to buy back a deceased brother’s shares. The Court held that the company’s obligation to redeem the shares didn’t reduce its value for estate tax, so the $3 million of insurance proceeds counted in what the company was worth. The IRS valued the deceased brother’s shares at about $5.3 million instead of $3 million, and the estate owed an additional $889,914.

The Court pointed to a cross-purchase agreement, where the owners buy each other’s shares and hold the policies themselves, as one alternative that would have kept the proceeds out of the company. It also noted that every arrangement has its own drawbacks. See buy-sell agreements for California businesses.

Privacy, which is often the actual reason

Probate is a public court proceeding. The inventory, the appraisals and the record of who received what sit in a file anyone can request. For families with recognizable names, visible businesses, or simply a preference for their affairs staying private, that is frequently the deciding factor rather than the fee.

A properly funded revocable trust keeps administration private. Nothing is filed, nothing is published, and the family deals with a trustee rather than a courtroom. The operative word again is funded. A trust drafted and never completed delivers the public proceeding it was bought to prevent.

Where tax does become the issue

For estates actually approaching the federal exemption, a few things matter. Portability is not automatic: unused exemption transfers to a surviving spouse only if a federal estate tax return is filed at the first death to elect it, and families skip that filing constantly because nothing appears to be owed. The cost lands at the second death.

Valuation discipline matters more than clever structures, particularly where interests are held in entities. Discounts for lack of control and lack of marketability are legitimate and well established, and they depend on the operating agreement actually restricting control and transfer, and on an appraisal that will hold up.

Planning that moves future appreciation out of the estate is generally more effective than trying to reduce what is already there. And none of it is worth doing for an estate comfortably below the exemption, which is most of the people who ask me about it.

What changes in California

Five California rules decide most of the outcome for an estate below the federal exemption: the community property step-up, the transmutation rule, Prop 13 reassessment of entity real estate, the state income tax and California’s limits on self-settled trusts.

What the double step-up is worth

When a married Californian dies, the surviving spouse’s half of community property gets a new basis equal to its value at death, along with the half that belonged to the spouse who died (IRC § 1014(b)(6)). The survivor’s half gets that treatment only if it’s community property. When spouses hold property in joint tenancy, only half is included in the first spouse’s estate (IRC § 2040(b)), and only that included half gets a new basis (IRC § 1014(b)(9)).

Hypothetical: a couple bought a stock portfolio or an LLC interest for $1 million. It’s worth $6 million when the first spouse dies, and it’s sold for $6 million soon after. The chart shows the combined tax on the sale under three ways of holding it.

The rate assumes the top federal capital gains rate of 20% (IRC § 1(h)), the 3.8% net investment income tax (IRC § 1411) and California’s top 13.3% rate, applied flat to the whole gain. It ignores California’s graduated brackets, deductions and any federal deduction for the state tax, so a real return will come out somewhat different. The asset is one with no depreciation and no home-sale exclusion, which would change the basis math.

A gift during life carries the donor’s basis over to the person who receives it (IRC § 1015). The IRS has also ruled that assets in an irrevocable grantor trust that stays out of the taxable estate get no step-up at death (Rev. Rul. 2023-2). For an estate under the exemption, giving appreciated property away early usually trades an estate tax nobody owed for a capital gains tax somebody will. See community property vs. separate property step-up and step-up in an irrevocable trust.

Changing community property takes an express writing

A transmutation isn’t valid unless it’s made in writing by an express declaration that the spouse giving up the interest makes, joins in, consents to or accepts (Fam. Code, § 852, subd. (a)). In Estate of MacDonald (1990) 51 Cal.3d 262, a wife had signed the consent paragraphs on her husband’s IRA forms naming his trust as beneficiary. The California Supreme Court held that wasn’t a transmutation, because a writing has to state expressly that the character or ownership of the property is changing.

A couple counting on the double step-up needs records showing the property is community, and a spouse who signed a bank form without reading it may not have changed anything. See transmutation agreements and trust assets.

Prop 19 and Prop 13 when real estate sits in an LLC

An LLC or partnership’s California real estate is reassessed when any person or entity obtains control of more than 50% of it through a purchase or transfer of interests (R&TC § 64, subd. (c)(1)). A second trap catches family entities: if property went into the entity in a transfer that wasn’t treated as a change in ownership, the owners right after that transfer become “original coowners,” and once more than 50% of the interests have moved from them, cumulatively, the property is reappraised (§ 64, subd. (d)).

The Prop 19 parent-child exclusion doesn’t rescue an entity. The statute that carries it out says real property “does not include any interest in a legal entity” (R&TC § 63.2, subd. (e)(8)), and the exclusion reaches only a family home or family farm. Before a trust or a gift moves LLC interests among family members, someone should count the percentages. See the Prop 19 parent-child exclusion and the Prop 19 calculator.

The 13.3% income tax and trust residency

California’s top bracket is 12.3%, plus an extra 1% on taxable income over $1 million (R&TC § 17043), and the state “does not have a lower rate for capital gains” (Franchise Tax Board).

Moving a trust out of state rarely moves the tax. A trust is taxed on its entire income if a trustee or a beneficiary whose interest isn’t contingent lives in California (R&TC § 17742, subd. (a)). In Steuer v. Franchise Tax Bd. (2020) 51 Cal.App.5th 417, the Court of Appeal held that a trust with one California trustee and one Maryland trustee owed California tax on all of its California-source income, regardless of where the trustees lived. The trust did win one point: a beneficiary who gets only what the trustee decides in its absolute discretion holds a contingent interest.

Incomplete-gift nongrantor trusts, long sold as a way around California tax, have been taxed to the person who set them up since 2023, with a narrow exception for a trust that elects to be taxed as a resident nongrantor trust and distributes at least 90% of its distributable net income to charity (R&TC § 17082). See whether a Nevada trust avoids California income tax.

A trust you set up for yourself won’t stop your creditors

In California, if you’re a beneficiary of a trust you created, a spendthrift clause is invalid against your creditors, and they can reach the most the trustee could pay you, up to what you contributed (Prob. Code, § 15304, subds. (a), (b)). Transfers made to hinder or delay a creditor can be undone, whether the claim arose before or after the transfer (Civ. Code, § 3439.04, subd. (a)).

What does work at this size is insurance, the exemptions California already provides, entities run as real businesses, and inheritances left in trust for the children. See asset protection in California and spendthrift trusts and creditor protection.

Cases won and lost at this estate size

What works and what fails below the exemption

Protecting what the next generation receives

One step gets overlooked because it costs nothing extra. A share left to a child outright is exposed to that child’s divorce, creditors and judgments from the moment it lands. The same share left in a properly drafted trust for that child is not.

For families passing substantial property to the next generation, that drafting choice is frequently worth more than any tax planning in the same document, and it is available at the outset for no additional fee.

Guides in this series

Every page in our California high-net-worth and ultra-high-net-worth series, by topic.

Freezing and transferring wealth

• GRAT (Grantor Retained Annuity Trust): How It Works, With the California Rules
• Intentionally Defective Grantor Trust (IDGT): How a Sale to a Grantor Trust Works in California
• Do You Still Need a SLAT After the 2026 Tax Law? (California)
• CA Dynasty Trusts: Benefits Guide 2026
• Generation-Skipping Trust in California: How It Works
• Family Limited Partnerships in California
• Defined Value Clauses and the Wandry Clause: Formula Gifts That Survive an Audit
• Valuation Discounts, Qualified Appraisals and Adequate Disclosure for Family Entity Gifts
• Swap Powers and Upstream Basis Planning: Getting a Step-Up After Rev. Rul. 2023-2
• Form 709: The Federal Gift Tax Return, Explained

Charitable planning

• Charitable Remainder Trust Attorney in California
• Charitable Remainder Annuity Trust (CRAT): Rules, 2026 Payout Math and the SPIA Listed Transaction
• Charitable Lead Annuity Trust (CLAT): Zeroed-Out CLATs, GST Traps and California Rules
• Private Foundation vs. Donor Advised Fund: Control, Deductions, 2026 Rules and California

Life insurance and liquidity

• Irrevocable Life Insurance Trust (ILIT): How It Works in California (2026)
• Private Placement Life Insurance (PPLI): Investor Control, Webber and California Rules
• Split-Dollar Life Insurance in Estate Planning: Levine, Morrissette, Cahill and Connelly
• Estate Tax Deferral Under Section 6166: Paying Estate Tax on a Family Business Over 14 Years
• Buy-Sell Agreements for California Businesses

Business owners and founders

• Estate Planning Before Selling a Business in California: Timing, Trusts and Taxes
• QSBS, Section 1202, and California
• Installment Sales of a California Business

Spouses, trusts and administration

• QTIP Trust Administration After the First Spouse Dies (CA)
• Estate Tax Portability in California: The 706 Most Families Skip
• Non-Citizen Spouse and the Estate Tax: The QDOT Rule (California)
• What Does HEMS Mean in a Trust? Health, Education, Maintenance, Support
• What Is a Trust Protector – and Do You Need One in California?
• Trust Decanting in California: A Trustee’s Guide
• Private Trust Companies and Family Offices: A California Guide

Residency, trusts and California tax

• Leaving California: Is There an Exit Tax, and What Follows You
• Can a Nevada Trust Avoid California Income Taxes?
• ING Trusts in California: How SB 131 and R&TC § 17082 Ended the NING
• Expatriation Tax and Estate Planning: Sections 877A and 2801
• California Billionaire Tax: What Prop 40 Would Do

Asset protection

• Asset Protection in California: What Actually Works (and What Is a Myth)
• Offshore and Domestic Asset Protection Trusts: Why They Fail Californians
• Moving California Real Estate Into an LLC: The Prop 13 Reassessment Trap

Strategies that backfire

• Estate Planning Strategies That Backfire: Abusive Tax Shelters and Costly Mistakes
• Deathbed Family Limited Partnerships: Why Late FLPs Fail Under Section 2036
• Micro-Captive Insurance: Section 831(b), the Court Losses and Form 8886 in 2026
• Monetized Installment Sales: Why the IRS Says the Deferral Fails
• Gifting Appreciated Assets vs. the Step-Up in Basis: When a Lifetime Gift Costs More Tax

Data, cases and examples

• Estate Tax Planning Strategies Compared: 22 Techniques Side by Side
• Estate Tax Cases Won and Lost: 34 Cases Scored
• Estate Tax Statistics (2026): 36 Verified Figures With Sources
• High Net Worth Estate Planning Examples: Four California Families by Net Worth

Working with Ridley Law

This page is for California families under the federal exemption who own real estate, a business, entity interests or a concentrated stock position, and who want the plan built around basis, property tax and control.

The first call is free and runs 30 minutes, by phone or Zoom. I work alongside your CPA and, where the matter calls for it, co-counsel. Work at this level is built for each family and quoted in writing before any drafting starts.

Book my 30-minute call or call 805-244-5291.

Frequently asked questions

Do we have an estate tax problem?

Probably not. California has no estate tax and the federal exemption is $15 million per person in 2026. Most estates that feel large are concentration, liquidity, governance and privacy problems instead.

Our property is in LLCs. Does the trust control it?

Only as far as the operating agreements allow. Transfer restrictions, consent requirements and buy-sell provisions generally control over the trust, so the two documents have to be read together and the agreement is usually the one needing amendment.

Most of the estate is one property and three children want different things. What works?

Deciding in advance rather than leaving it to them. One child takes the asset with the others equalized from other property or insurance, or the trust directs a sale by a stated date, or a named child holds a defined option to buy at appraisal. Undivided equal shares is the arrangement that most reliably ends in conflict.

How would the estate pay a tax bill if everything is land?

That is the liquidity question, and it needs answering in advance because federal estate tax is due nine months after death and payable in cash. The usual answers are insurance held outside the estate or deciding ahead of time which asset is sold.

Will any of this be public?

Not if the trust is funded. Probate creates a public file including the inventory and the distributions. Trust administration does not. A trust that was never funded gives you the public proceeding anyway.

Can I protect what my children inherit?

Yes, and it costs nothing extra to draft it that way. A share left in a properly drafted trust rather than outright can be shielded from that child’s divorce, creditors and judgments.

What is the double step-up in basis?

When a married Californian dies, both halves of community property get a new income tax basis equal to value at death, so the surviving spouse can sell soon after with little or no capital gain (IRC § 1014(b)(6)). Property spouses hold in joint tenancy gets a new basis on only the half included in the first spouse’s estate (IRC §§ 2040(b), 1014(b)(9)).

Does Prop 19 apply to property held in an LLC?

No. The parent-child exclusion covers a family home or family farm, and the statute says real property doesn’t include an interest in a legal entity (R&TC § 63.2). LLC real estate is reassessed under separate rules when control of more than 50% changes hands (R&TC § 64).