California has no estate tax and no inheritance tax. The state banned both in 1982, and nothing you leave to your heirs will be taxed by Sacramento on account of your death. What Californians with larger estates still face is the federal estate tax, which in 2026 applies only to individual estates above $15 million. Two other death-related costs hit far more families than the federal tax ever will: property tax reassessment under Proposition 19, and California’s statutory probate fees.
No State Estate or Inheritance Tax
California voters passed Proposition 6 in June 1982, repealing the state’s inheritance tax and replacing it with a flat prohibition. Revenue and Taxation Code Section 13301 bars the state and every local government from collecting any tax triggered by a death or a gift.1California Legislative Information. California Code Revenue and Taxation Code 13301 – Imposition of Tax That prohibition covers estate taxes, inheritance taxes, succession taxes, and legacy taxes.
The distinction between the two types matters when you compare California to other states. An estate tax is levied on the total value of a deceased person’s assets before distribution. An inheritance tax falls on individual recipients. California imposes neither, regardless of the amount inherited or the relationship between decedent and heir. Heirs receiving property from a California decedent owe nothing to the state on the transfer itself.
When the Federal Estate Tax Applies
The federal estate tax exemption for 2026 is $15 million per individual. A married couple using portability can shield up to $30 million. That $15 million figure is a permanent increase enacted through the One Big Beautiful Bill Act, which replaced the temporary doubling under the 2017 Tax Cuts and Jobs Act that had been scheduled to expire. Starting in 2027, the threshold will be adjusted annually for inflation.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
The rate table technically starts at 18% on the first $10,000 of taxable estate value, but because the unified credit eliminates tax on everything below the exemption, the effective rate on any dollar actually taxed is 40%.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax The gross estate includes the fair market value of everything the decedent owned at death: real estate, bank accounts, investment portfolios, business interests, annuities, and personal property, all valued as of the date of death.4Internal Revenue Service. Estate Tax
Life insurance often surprises families. If the decedent held any “incidents of ownership” over a policy at death, such as the power to change beneficiaries, borrow against the policy, or cancel it, the full proceeds are included in the gross estate even when someone else receives the payout.5Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance
California’s community property rules cut the gross estate in half for many married decedents. Property acquired during a marriage is generally owned equally by both spouses, so only the decedent’s half of community property counts toward the federal gross estate. A couple whose $20 million in assets is entirely community property would have a decedent’s gross estate of roughly $10 million, comfortably under the exemption.
Marital Deduction and Portability
Two federal provisions keep most surviving spouses from ever facing an estate tax bill. The unlimited marital deduction allows the entire estate to pass to a surviving spouse who is a U.S. citizen without triggering any estate tax, regardless of the amount.6Office of the Law Revision Counsel. 26 USC 2056 – Bequests to Surviving Spouse The tax question is deferred until the second spouse dies. If the surviving spouse is not a U.S. citizen, the marital deduction is denied unless the assets pass through a qualified domestic trust.
Portability then lets a surviving spouse inherit whatever exemption the first spouse to die did not use. If the first spouse used only $3 million of a $15 million exemption, the survivor can add the remaining $12 million to their own $15 million and shield $27 million total. But portability is not automatic. The estate must file Form 706 and affirmatively make the election, even when no tax is owed.7Internal Revenue Service. Form 706 – United States Estate and Generation-Skipping Transfer Tax Return Miss it and the unused exemption is lost permanently. Estates that are not otherwise required to file get a five-year window after death to submit a portability-only Form 706 under Revenue Procedure 2022-32; estates above the filing threshold do not qualify for that extension.
Filing Form 706 and Its Deadlines
Form 706 is required when the gross estate plus adjusted taxable gifts exceeds the filing threshold, or when the estate is electing portability.8Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return The personal representative of the estate is responsible for filing it, and preparing the return means assembling date-of-death valuations for every asset, with professional appraisals for real estate and closely held businesses.
The return is due nine months after the date of death.9Internal Revenue Service. Instructions for Form 4768 – Application for Extension of Time to File a Return and/or Pay U.S. Estate Taxes Form 4768 secures an automatic six-month extension for filing, pushing the deadline to 15 months after death.10Internal Revenue Service. About Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate Taxes The extension applies to filing, not to payment. Any estate tax owed is still due at the original nine-month mark, and interest accrues on unpaid balances from that date.
Filing late without a valid extension triggers a penalty of 5% of the unpaid tax for each month the return is overdue, capped at 25%.11Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax A separate failure-to-pay penalty of 0.5% per month, also capped at 25%, applies when the tax is not paid on time. Both can run at once, with interest compounding on top.
The Community Property Step-Up in Basis
California residents get one of the biggest hidden tax advantages in the federal code, and it has nothing to do with the estate tax itself. Inherited property normally receives a “step-up” in basis to its fair market value at the date of death. In common law states, only the deceased spouse’s half of jointly owned property gets that adjustment. Under Section 1014(b)(6), community property gets a full step-up on both halves, including the surviving spouse’s share.12Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Say a California couple bought a home decades ago for $200,000 and it is worth $1.5 million when one spouse dies. In a common law state, the surviving spouse’s half keeps the original $100,000 basis, and only the deceased spouse’s half steps up to $750,000, leaving $650,000 in potential capital gains on a sale. In California, both halves step up to fair market value. The surviving spouse’s new basis is the full $1.5 million and they can sell with zero capital gains tax. On high-value California real estate, the double step-up can save hundreds of thousands of dollars.
Property Tax Reassessment Under Proposition 19
The death-related tax hit that actually reaches most California families is not federal at all. When real estate changes hands at death, the county assessor reassesses the property at current market value, and the heir’s property tax bill can jump dramatically. Proposition 19, which took effect in February 2021, narrowed the parent-child exclusion that previously shielded inherited property from reassessment.
A child who inherits a parent’s home can keep the parent’s low tax base only by using the property as their own primary residence and filing for a homeowner’s exemption within one year of the transfer. Even then, there is a cap. The exclusion covers the property’s existing taxable value plus an adjusted amount of approximately $1,044,586 for transfers through February 2027.13California State Board of Equalization. Proposition 19 Fact Sheet If the property’s market value exceeds that combined figure, the difference gets added to the tax base. Investment properties and second homes inherited from parents receive no exclusion and are reassessed to full market value.
A family home bought in the 1980s with a Proposition 13 tax base of $80,000, now assessed at $1.5 million, could see the annual property tax bill jump from roughly $1,000 to over $15,000 in the heir’s hands. Over a decade, that is a six-figure cost. Many California families find this more immediate than any federal estate tax exposure.
California Probate Fees
The other cost families run into is probate. California sets attorney and executor fees by statute as a percentage of the estate’s appraised value, not the net equity. That matters when real estate is mortgaged. A home appraised at $1.5 million with a $1 million mortgage is valued at $1.5 million for fee purposes.
The statutory fee schedule for both the attorney and the personal representative is:
- 4% on the first $100,000
- 3% on the next $100,000
- 2% on the next $800,000
- 1% on the next $9,000,000
- 0.5% on the next $15,000,000
Both the attorney and the personal representative are each entitled to this fee, so the total statutory cost is roughly double.14California Legislative Information. California Probate Code 10810 – Compensation Based on Value of Estate For a $1 million estate, that is $23,000 each, or $46,000 combined, before any “extraordinary” fees a court might approve for complex situations. A $2 million estate runs closer to $66,000 in combined statutory fees. Those costs come straight out of the estate.
This is why California estate planning attorneys push revocable living trusts. Assets held in a properly funded trust avoid probate entirely and sidestep the statutory fees. For most California families, avoiding probate costs matters more than any concern about federal estate tax.