Short answer: For most Californians, taxes barely touch an estate plan. The federal estate and gift tax exemption is $15,000,000 per person in 2026, or $30,000,000 for a married couple, so unless your combined estate is well into eight figures, no federal estate tax applies. California has no state estate tax and no state inheritance tax. The planning that actually affects most families is the income tax basis your heirs get on inherited assets and staying inside the annual gift tax exclusion, not exemption planning for a tax that will never apply to them.
What is the federal estate tax exemption in 2026?
The federal estate and gift tax exemption for 2026 is $15,000,000 per person, or $30,000,000 for a married couple, made permanent under the One Big Beautiful Bill Act, P.L. 119-21, § 70106. Internal Revenue Code § 2010(c) is the operative provision. If your estate, combined with any taxable gifts you made during life, stays under that number, no federal estate tax is owed. For the large majority of California families, that number is not in reach, and exemption planning is not the priority it was a decade ago when the threshold was far lower.
Does California charge its own estate or inheritance tax?
No. California has no state estate tax and no state inheritance tax, under Revenue and Taxation Code § 13301. Your heirs will not owe the state a percentage of what they inherit simply because they inherited it. The tax exposure Californians actually face on an estate comes from federal rules and from income tax on gains realized after the fact, not from a state-level death tax.
How much can I give away each year without filing paperwork?
The 2026 annual gift tax exclusion is $19,000 per recipient, per donor. A married couple who elects to split gifts can give $38,000 to any one person in 2026 without triggering a gift tax return. Direct payments of tuition or medical bills made straight to the school or provider are unlimited and do not count as gifts at all, under Internal Revenue Code § 2503(e).
Families funding a grandchild’s education sometimes front-load a 529 plan: five years of annual exclusions in a single contribution, up to $95,000 per beneficiary in 2026, or $190,000 for a married couple, by electing on Form 709 to spread the gift over five years.
What happens if my gifts exceed the annual exclusion?
Gifts to one person above the annual exclusion require you to file IRS Form 709, but that does not mean you owe tax. No gift tax is actually due until your cumulative lifetime gifts exceed the $15,000,000 exemption, under Internal Revenue Code §§ 2010(c) and 2503(b). Filing the form uses up part of your lifetime exemption on paper. It does not write a check to the IRS unless you have already given away tens of millions of dollars over your lifetime.
What happens to the tax basis of assets my heirs inherit?
This is where taxes actually matter for most California families, and it has nothing to do with the estate tax exemption. Inherited property generally receives a step-up in basis to its fair market value on the date of death, under Internal Revenue Code § 1014. If your heirs sell soon after inheriting, there is often little or no capital gain to tax. For a married couple’s community property, when the first spouse dies, both halves of the asset step up, not just the deceased spouse’s half, under Internal Revenue Code § 1014(b)(6). Under joint tenancy, only the deceased spouse’s half gets the step-up. How you hold title can matter more to your heirs’ actual tax bill than anything in the estate tax exemption rules.
The opposite result applies if you give an appreciated asset away during your life. The recipient takes your original, carryover basis, not a step-up, so the built-in gain becomes taxable when they eventually sell. Before gifting appreciated property to shrink your estate, ask whether holding it until death, so it passes with a stepped-up basis, actually serves your family better.
Can my spouse and I combine our unused exemptions?
Yes, through a process called portability. A surviving spouse can add the deceased spouse’s unused federal estate tax exemption, the DSUE, to their own, but only if the first spouse’s executor files IRS Form 706 and affirmatively elects portability, even when the estate is not otherwise required to file one. If that filing gets missed, an executor generally has up to five years from the date of death to file a late Form 706 and elect portability, under Revenue Procedure 2022-32. Separately, the unlimited marital deduction under Internal Revenue Code § 2056(a) lets spouses transfer assets to each other tax-free during life or at death, and a QTIP marital trust under § 2056(b)(7) is a common tool for controlling where those assets go after the second spouse dies.
None of this turns on whether your plan uses a will or a trust. A living trust does not by itself reduce income tax, property tax, or estate tax, and since California has no state estate tax to begin with, a living trust earns its keep by avoiding probate and controlling how assets pass, not by cutting a tax bill that mostly does not exist for California families.
Figures verified July 2026.
What to do next
If your estate is nowhere near eight figures, the planning that matters most is a properly funded estate plan, a clear understanding of how title and basis affect what your heirs pay when they sell, and disciplined use of the annual gift exclusion instead of guesswork. If your estate is large enough that the federal exemption is a real question, or a surviving spouse needs a portability election filed on time, talk to an estate planning attorney before assets change hands.
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