Updated for 2026 Federal Tax Law Changes and the One Big Beautiful Bill Act (OBBBA)
California remains one of the most attractive states for estate planning because it does not impose a state estate tax or a state inheritance tax. However, federal estate tax rules still apply to larger estates, and recent changes under the One Big Beautiful Bill Act (OBBBA) have significantly altered the landscape for wealthy families and retirees.
For many HuuTri.org readers, understanding these rules can help preserve family wealth, avoid unnecessary taxes, and ensure assets pass efficiently to children and grandchildren.
Major Change for 2026: One Big Beautiful Bill Act
One of the most significant estate planning provisions of President Trump’s One Big Beautiful Bill Act was the permanent increase of the federal estate and gift tax exemption. Prior law would have reduced the exemption dramatically beginning in 2026. Instead, Congress permanently increased the exemption.
Federal Estate Tax Exemption for 2026
| Status | Exemption |
|---|---|
| Single Individual | $15 million |
| Married Couple (with proper planning and portability) | $30 million |
The new exemption amount is scheduled to be indexed for inflation beginning in 2027.
What This Means
Before the OBBBA, many estate planners expected the exemption to fall to roughly $7 million per person in 2026.
That reduction would have exposed many more families to federal estate taxes.
The new law eliminates that concern for most households and allows many affluent families to transfer significantly more wealth tax-free.
Federal Estate Tax Rate Remains Unchanged
Although the exemption increased, the tax rate did not.
Federal estate tax rates continue up to:
40%
on amounts exceeding the exemption threshold.
Example 1: Estate Worth $12 Million
A California widow dies in 2026 with:
- Home: $4 million
- Investments: $6 million
- Other assets: $2 million
Total estate:
$12 million
Because the estate is below the $15 million exemption:
Federal Estate Tax Owed: $0
California Estate Tax Owed: $0
Children receive the inheritance without estate or inheritance taxes.
Example 2: Estate Worth $20 Million
A California resident dies with:
- Real estate: $10 million
- Investments: $8 million
- Business interests: $2 million
Total estate:
$20 million
Federal exemption:
$15 million
Taxable amount:
$5 million
At the top federal estate tax rate, the taxable portion could generate approximately:
$2 million in federal estate taxes
before distributions to heirs.
California would still impose:
$0 estate tax
$0 inheritance tax
Example 3: Married Couple Worth $28 Million
A married California couple has:
- Residence and rentals: $12 million
- Investments: $10 million
- Retirement accounts and cash: $6 million
Total estate:
$28 million
With proper planning and portability elections, the couple may use approximately:
$30 million federal exemption
Because the estate falls below that threshold:
Federal Estate Tax: $0
California Estate Tax: $0
This is one of the largest benefits created by the new law.
Does California Tax Children Who Inherit Property?
No.
A child who inherits:
- A house
- Cash
- Brokerage accounts
- Family business interests
does not owe California inheritance tax.
However, future income generated by inherited assets may be taxable.
Examples:
- Rental income from inherited property
- Interest income
- Dividend income
- Capital gains from future sales
These are separate income-tax issues, not inheritance taxes.
Important California Issue: Proposition 19
While California has no inheritance tax, many families are surprised by the effects of Proposition 19.
Under current law:
- Children generally no longer inherit their parents’ low property tax assessment on rental properties.
- Significant property tax increases may occur when inherited real estate changes ownership.
- Limited protections remain for qualifying primary residences.
For many California families, Proposition 19 can have a larger financial impact than estate taxes. Families with highly appreciated real estate should discuss planning strategies with qualified estate-planning attorneys and tax professionals.
What About Gifts During Life?
The federal estate and gift tax system is unified.
The same $15 million exemption generally applies to:
- Lifetime gifts
- Transfers at death
- Generation-skipping transfers
The OBBBA increased the gift-tax exemption along with the estate-tax exemption.
This provides greater flexibility for:
- Gifting assets to children
- Funding irrevocable trusts
- Reducing future estate growth
- Multigenerational wealth planning
Should Most HuuTri Readers Be Concerned?
For the vast majority of retirees, the answer is:
Probably not.
Most California households have estates well below $15 million per person.
More common concerns include:
- Probate avoidance
- Living trusts
- Medical directives
- Powers of attorney
- Property tax planning under Proposition 19
- Capital gains and step-up in basis rules
- Long-term care planning
These issues often affect more families than federal estate taxes.
Key Takeaways
✓ California still has no estate tax
✓ California still has no inheritance tax
✓ The One Big Beautiful Bill Act permanently increased the federal estate tax exemption to $15 million per person beginning in 2026
✓ Married couples may shield approximately $30 million with proper planning
✓ Federal estate tax rates remain as high as 40% above the exemption
✓ Proposition 19 remains one of the biggest estate-planning concerns for California homeowners
✓ Most Californians should focus on trusts, probate avoidance, healthcare directives, and property tax planning rather than estate taxes alone
-Lê Nguyễn Thanh Phương (Updated for 2026 by HuuTri.org Editorial Team)-
Sources for Further Reading