Estate Tax Exemption Locks at $15 Million: What This Means for California Families

For years, estate planning professionals warned clients about the looming “estate tax cliff” — the scheduled drop of the federal estate tax exemption from roughly $13.6 million per person back to approximately $7 million at the end of 2025. That cliff has been eliminated. The One Big Beautiful Bill Act (OBBBA) permanently locked the estate and gift tax exemption at approximately $15 million per person ($30 million per married couple), with annual inflation indexing going forward.

For California families, this is significant — not only because it removes the urgency behind certain estate planning strategies, but because California has no separate state estate tax, making the federal exemption the only threshold that matters. At The Law Office of Pietro Canestrelli, we help families across Temecula, San Diego, Riverside, San Bernardino, and throughout California understand how the permanent exemption affects their estate tax planning.

What the Permanent Exemption Means in Practice

With the exemption at $15 million per individual ($30 million per couple with portability), the vast majority of American families — and even most high-net-worth families — will never owe federal estate tax. The Tax Policy Center estimates that fewer than 0.1% of estates are large enough to trigger the tax at these levels.

However, “never owe estate tax” doesn’t mean “no estate planning needed.” Estate planning serves far more purposes than tax avoidance:

Avoiding probate (which in California can cost 4-5% of the estate’s value in statutory fees)
Protecting assets from creditors, lawsuits, and divorce
Providing for minor children or beneficiaries with special needs
Managing the transfer of business interests
Minimizing California income tax on inherited assets

For families with estates near or above the exemption threshold — particularly those with significant real estate in California’s expensive markets, business ownership interests, or concentrated stock positions — the permanent exemption provides planning certainty that the sunset scenario would not have allowed. Learn more about trust strategies in our guide on protecting assets with a trust.

The Gift Tax Exemption: Use It Now Without Fear

The estate tax exemption and the gift tax exemption are unified — the same $15 million applies to both lifetime gifts and transfers at death. This means you can use part of your exemption during your lifetime by making large gifts to family members without owing gift tax.

Under the old sunset scenario, many advisors were recommending “use it or lose it” strategies — making large gifts before the exemption dropped. With the exemption now permanent, that urgency has passed. But there are still strong reasons to make lifetime gifts:

Removing appreciation from your estate: If you gift an asset worth $2 million today and it grows to $5 million by the time of your death, the $3 million in appreciation is outside your estate
Annual exclusion gifts: The annual gift tax exclusion is $19,000 per recipient for 2026, allowing you to transfer significant wealth over time without using any of your lifetime exemption
Direct payments for education and medical expenses: These are unlimited and don’t count against the annual exclusion or lifetime exemption

Proposition 19 and Inherited Property in California

While federal estate taxes won’t apply to most families, California’s Proposition 19 (effective February 16, 2021) significantly changed the property tax treatment of inherited real estate — and this affects far more California families than the federal estate tax ever will.

Before Prop 19, children who inherited their parents’ home could keep the original (often much lower) property tax assessment under Proposition 13 — regardless of whether they lived in the home. Prop 19 changed this:

The property tax base transfer is now only available if the child uses the home as their primary residence
If the property’s current value exceeds the assessed value by more than $1 million, the excess is reassessed at current value
Investment and rental properties inherited from parents are fully reassessed to current market value

For families in San Diego, Temecula, Riverside, and other California markets where home values have appreciated significantly over decades, this reassessment can increase annual property taxes by $10,000-$30,000 or more. Planning around Prop 19 — through trusts, LLC structures, or other strategies — requires careful legal analysis. See our article on estate tax tips for Californians for more detail.

Trusts Remain Essential for California Families

With the estate tax affecting so few families, many people ask: “Do I still need a trust?” For Californians, the answer is almost always yes — and the primary reason is probate avoidance.

California’s probate process is one of the most expensive in the nation. Statutory fees for attorneys and executors are set by law based on the gross value of the estate:

4% of the first $100,000
3% of the next $100,000
2% of the next $800,000
1% of the next $9 million
0.5% of the next $15 million

For a $1 million estate (not uncommon in California’s real estate market), probate fees can exceed $46,000 — and that’s before court costs, filing fees, and the 12-18 months the process typically takes. A properly funded revocable living trust avoids probate entirely.

Learn about different trust types in our article on popular trusts and how to form one.

Planning Strategies That Still Matter

Even with a $15 million exemption, several estate planning strategies remain relevant:

Irrevocable Life Insurance Trusts (ILITs): For families with estates approaching the exemption threshold, keeping life insurance proceeds outside the estate can prevent crossing the line
Generation-Skipping Trusts: The GST exemption is also locked at $15 million, making multi-generational planning more accessible
Charitable Remainder Trusts: These provide income during your lifetime, a charitable deduction, and support for causes you care about — valuable regardless of estate tax exposure
Family Limited Partnerships (FLPs): Still useful for managing family wealth, providing valuation discounts, and controlling asset distribution — though the IRS continues to scrutinize aggressive FLP structures
Spousal Lifetime Access Trusts (SLATs): A way to make gifts to an irrevocable trust while retaining indirect access to the funds through your spouse

The Stepped-Up Basis Survived

One critical provision that the OBBBA preserved: the stepped-up basis at death. When you inherit an asset, your cost basis is “stepped up” to the fair market value at the date of death. This means all unrealized gains accumulated during the decedent’s lifetime are permanently eliminated for income tax purposes.

For a family inheriting a home purchased for $200,000 that’s now worth $1.2 million, the stepped-up basis means no capital gains tax on the $1 million in appreciation — a savings of over $130,000 in combined federal and California capital gains taxes.

The stepped-up basis was threatened during earlier legislative discussions but was ultimately preserved in the OBBBA. This has significant implications for how Californians should hold appreciated assets — particularly real estate — as part of their estate plan. Visit our page on capital gains tax for additional context.

Plan Your Estate with Confidence

The permanent $15 million exemption gives California families something they haven’t had in years: certainty. You can plan knowing the rules won’t change — at least not on the estate tax front. But California’s probate costs, Prop 19 property tax rules, and income tax implications of inherited assets mean estate planning is as important as ever.

At The Law Office of Pietro Canestrelli, we work with families across Temecula, San Diego, Riverside, San Bernardino, and throughout California on comprehensive estate planning that addresses taxes, probate, property transfers, and family dynamics.

Ready to review your estate plan under the new law? Contact our office to schedule a consultation.

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