7 Inheritance Tax Myths California Families Need to Know

Short answer: California has no state inheritance tax and no state estate tax, and most families will never see a federal estate tax bill either. The 2026 federal exemption is $15,000,000 per person and $30,000,000 for a married couple, so estate tax only becomes a real planning issue for very large estates. What trips people up is confusing “no inheritance tax” with “no planning needed,” and misunderstanding how gifts, trusts, and a surviving spouse’s exemption actually work.

Does California have its own inheritance tax?

No. California has no state estate tax and no state inheritance tax, under Revenue and Taxation Code § 13301. Money or property you inherit from a California resident is not taxed by the state simply because you inherited it. The confusion usually comes from other states: a handful still impose a tax on the person receiving property, but California is not one of them.

That does not mean an inheritance is free of every tax consideration. Federal estate tax can still apply to very large estates, and inherited assets carry their own income tax basis rules. Not owing a California inheritance tax is not the same as needing no estate planning at all.

Will my family actually owe federal estate tax?

Almost certainly not. 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. Federal estate tax only applies to the value of an estate above that exemption amount. A family with a house, some savings, and a couple of retirement accounts is nowhere near that threshold.

Where families get surprised is adding it up wrong. The taxable estate includes real estate, retirement accounts, business interests, and other property, not just cash in the bank. Even accounting for that, at $15,000,000 per person the exemption is high enough that the large majority of California families fall well under it.

Does a living trust or avoiding probate get you out of estate tax?

No, and this is one of the more persistent myths. A revocable living trust is a probate-avoidance tool, not a tax-avoidance tool. It does not reduce income tax, property tax, or estate tax, because California has no state estate tax to avoid in the first place. Probate itself is a court process for validating a will and supervising distribution. Whether an estate goes through probate has nothing to do with whether federal estate tax applies to it. A large estate owes the same federal estate tax whether the assets pass through probate or through a living trust.

For married couples, the actual estate tax planning tool is the unlimited marital deduction, which allows unlimited tax-free transfers between spouses, and, for more complex situations, a QTIP marital trust. Those are tax planning devices built for that purpose. A basic revocable trust, by itself, is not.

Are gifts to family members taxable?

Not usually, but the rules are more specific than “give whatever you want.” For 2026, you can give up to $19,000 to any one person without filing a gift tax return, or $38,000 per person if you are married and both spouses agree to split the gift. Give more than that to one person in one year and you generally need to file IRS Form 709, though you still will not owe any actual tax unless your cumulative lifetime gifts exceed the $15,000,000 exemption.

Two things do not count against the annual exclusion at all: tuition or medical expenses paid directly to the school or provider, in any amount, and gifts to a noncitizen spouse up to $194,000 for 2026. Families who want to move more money at once sometimes “superfund” a 529 education account, front-loading five years of annual exclusions into a single year, up to $95,000 per beneficiary or $190,000 for a married couple, by electing on Form 709 to spread the gift over five years.

What happens to my spouse’s unused exemption?

It can be preserved, but only if someone files the right paperwork. Portability lets a surviving spouse add the deceased spouse’s unused federal estate tax exemption to their own. To get it, the first spouse’s executor has to file IRS Form 706 and affirmatively elect portability, even if the estate is not otherwise large enough to require a 706 and no tax is owed. Skip that filing and the unused exemption is generally lost.

If that filing gets missed at the time of death, there is a fallback. An executor generally has up to five years from the date of death to file a late Form 706 and elect portability. It is not automatic, and families should not assume it happened without checking.

Does any of this matter if we are not ultra-wealthy?

For federal estate tax specifically, mostly no. At $15,000,000 per person, most California families never come close. But “ultra-wealthy” thinking is where people get complacent about the parts of an estate plan that have nothing to do with the federal exemption: making sure a will or trust actually says what you want, naming the right beneficiaries and fiduciaries, and understanding what does and does not need to go through probate. None of that requires a $15,000,000 estate to matter.

Figures verified July 2026.

What to do next

If your estate is anywhere near the federal exemption, you are married to a non-citizen, or you are planning large gifts, build a plan around your actual numbers rather than general rules of thumb. For most California families, the more useful question is not whether you will owe estate tax but whether your plan is set up correctly at all. An estate planning attorney can review your specific assets and tell you what, if anything, you actually need to do.