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Last Modified on Sep 08, 2025
The federal estate tax exemption is about to undergo significant change when 2025 ends, with those Californians who have bigger estates experiencing most of the impact. This shift can change how families pass down their wealth. Let’s look at how the new 2025 sunset of the estate tax exemption affects Californians, what’s coming in 2026, and what actions you can take now to prepare.
Understanding Estate Taxes
To be clear, California doesn’t have a state-level estate or inheritance tax. Your estate won’t owe any taxes to California, regardless of its size. However, California residents’ estates may be subject to federal estate tax if their value exceeds the federal exemption amount. In 2025, this limit stands at $13,990,000 for each person or $27,980,000 for married couples.
In 2021, California estates filed over 1,100 federal estate tax returns, totaling over $3.6 billion in net estate tax. Additionally, the yearly gift tax exemption sits at $19,000 for each recipient (or $38,000 for couples who are married). These higher limits give Californians an opportunity to transfer assets without incurring federal gift or estate taxes, before the exemption decreases in 2026.
Why the Change?
The reasons for the change go back to 2017 and the Tax Cuts and Jobs Act (TCJA). This law doubled the estate tax exemption for a limited time and was linked to inflation. From the beginning, it was set to end in 2025 unless Congress chose to extend it.
What the 2025 Tax Law Changes Mean for Estate Planning
In 2025, Congress approved new rules—often called the OBBBA—which changed what people can expect. Rather than reverting to 2017 rules, it set up a new $15 million break for each person (or $30 million for married couples). Starting in 2026, these numbers will go up with inflation.
This change provides some breathing room, but it doesn’t eliminate the need to plan. How the exemption works in real life will depend on the finer points of putting it into action, guidance from the IRS, and future tweaks to adjust for inflation.
How Californians May Be Affected
While Californians don’t have to deal with a state estate tax, they still need to think about federal taxes:
- If your estate is worth less than $13,990,000 in 2025, you can have one final year to move your assets around without paying federal estate tax.
- If your estate is worth more than that, you should already be making plans. The upcoming changes mean you need to act fast.
- The new $15 million exemption for 2026 gives you some wiggle room, but how they adjust for inflation and how the IRS interprets it could change these numbers.
The annual gift exclusion offers a simple way to shrink your taxable estate, allowing you to give assets without touching your lifetime exemption. The IRS’s 2025 adjustments announcement provides more details.
What to Do Now: 2025 Practical Strategies
Since the estate tax scene is changing, it’s crucial to plan ahead. Here are some practical next steps:
- Max out annual gifting: Take full advantage of the $19,000 exclusion this year. Smart, tax-free gifts to family members can reduce your estate’s size over time.
- Use trusts and lifetime planning tools: Structures like irrevocable life insurance trusts (ILITs) and dynasty trusts allow you to move wealth out of your estate while keeping some control. These tools also help protect assets from future taxes.
- Check portability choices: If you’re married, make sure your executor files the portability election so the surviving spouse can use any unused portion of the exemption.
- Revise estate planning documents: It’s important to look over wills and trusts, considering who gets what and who can make choices for you. These should utilize the latest exemption amounts and match your updated wishes.
- Hire an estate planning lawyer: The law around estate planning can be complicated, and the changes in 2025 can make it even harder to understand. Working with a lawyer can ensure your estate plan meets your goals and follows all applicable laws, both current and pending.
FAQs
What Happens to the Estate Tax Exemption in 2025?
In 2025, the federal estate and gift tax exemption reaches $13,990,000 for each person or $27,980,000 for couples who are married. Estates that exceed this limit are subject to federal taxes. This is the final year with the higher exemption, which opens up an important opportunity to plan ahead. People can make the most of this by giving gifts or updating their trusts.
What Is the California Estate Tax Exemption in 2025?
There is no “California Estate Tax Exemption” in 2025. California does not have its own estate or inheritance tax. This means residents’ estates are only subject to federal estate taxes and tax exemptions. To understand how current laws and pending changes may impact your estate, speak with an experienced and qualified estate planning attorney.
What Happens to the Estate Tax Exemption in 2026?
Without an extension, the temporarily increased estate tax exemption created by the 2017 Tax Cuts and Jobs Act will expire. Instead, new legislation established in the One Big Beautiful Bill Act (OBBBA) sets the amount for the federal estate, gift, and GST tax exemption at $15 million per person—or $30 million for married couples‑indexed for inflation. How the IRS interprets and applies these rules will affect their practical implementation.
What Is the Inheritance Change for 2025?
California doesn’t have a state inheritance or estate tax, so nothing changes at the state level. The only shift happens at the federal level—2025 is the last year for the Tax Cuts and Jobs Act (TCJA)’s higher exemption amounts. In 2026, a new permanent $15 million exemption was established, with plans to adjust for inflation.
Hire an Estate Planning Lawyer Today
The expiration of the estate tax exemption in 2025 can significantly impact the estate plans for families with substantial assets in their estates. Though California doesn’t have its own estate taxes, federal rules will decide how much of your wealth goes to your loved ones. Taking action now—through giving gifts, setting up trusts, and bringing your legal papers up to date—can protect your legacy and lower your tax obligation.
Contact our office today to speak with an experienced estate planning attorney at Goebel Estate Planning and learn how you can begin preparing as soon as possible for upcoming changes.
