Federal and State Level Estate Taxes.

An estate (death) tax taxes your estate on the transfer of assets you owned at your death. Most people are not presently concerned about the federal estate tax as the threshold for federal estate tax is a decedent’s estate with a net worth of at or above around the application exclusion amount of 14 million dollars. California, however, does not itself have a state imposed estate tax. Many residents in California are unaware that because they also own assets located in other states that such assets may become subject to a state level estate tax when they die. Let us discuss some basic facts about the estate tax at each of the federal and state levels.

The present federal estate tax applicable exemption amount is at a record $14 million threshold and applies to well under one percent of the decedents’ estates. That means, under the federal Internal Revenue Code for 2025, only decedents dying in 2025 with a net worth exceeding some $14 million (after taking any other estate tax deductions) become subject to the federal estate tax on the excess amount. The estate tax can even be entirely eliminated by leaving such excess to the decedent’s surviving spouse and/or to federally recognized tax exempt charities.

However, on January 1, 2026, the 2017 Tax Cuts and Jobs Act (that gave us the current exemption) sunsets and the federal estate tax exemption amount is reduced to around $7 million (i.e., essentially half)! This drop will certainly catch the attention of some Californians who may wish to do what they can now to reduce or even eliminate their potential exposure to an apparently resurgent federal estate tax. Of course, bear in mind that the Republican controlled Congress may enact new legislation that extends the federal estate tax exemption amount at its record high or at least prevents it being halved.

However, some may wish to use their existing $14 million unified federal estate and lifetime gift tax applicable exclusion amount (estate tax credit) before January 1, 2026, rather than risk losing it. That is, all lifetime gifts made now that collectively exceed the $7 million expected future (i.e., reduced) federal estate exemption amount will not be subject to estate tax for decedents dying after January 1, 2026.

Next, California residents may own property elsewhere in the US (and abroad) that may become subject to an estate tax in that jurisdiction when they die, whether or not their estate owes a federal estate tax and regardless of the fact that they reside in California which does not impose a state level estate tax. Twelve states plus the district of Columbia presently have an estate tax.

Consider, for example, Washington State’s estate tax applies to their state residents and to any non-residents who own sufficient real and personal property located in Washington, but only to the extent of such assets in Washington State for non- residents. The applicable exclusion amount is only $2,193,000. That means if a California decedent owns more than $2,193,000 in assets (typically real property) located in Washington then they may have to pay a Washington State estate tax, even though they may or may not have to pay a federal estate tax. Washington state residents, however, must include all of their property wherever located in computing their estate tax. Clearly moving one’s residency from Washington State to California can be very estate tax beneficial to some well off people. However, such a relocation is an income tax disadvantageous move because Washington State does not have an income tax and California does. Further analysis is required.

The foregoing discussion is not tax advice. Anyone confronting such estate planning issues should consult with a tax planner. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.