The New $15 Million Estate Tax Exemption: What California Families Should Do Now

Short Answer

For 2026, the federal estate and gift tax exemption amount is $15,000,000 per person, and the annual exclusion amount for gift tax remains $19,000 per beneficiary. California does not collect a separate estate or inheritance tax for current deaths; however, California Probate, California Trusts & Wills, Trust Administration, Medi-Cal Planning, real estate reassessment, and California Estate Tax analysis still require planning.

Introduction: A Bigger Exemption Is Not a Finished Plan

The new $15 million unified estate and gift tax exemption gives high-net-worth individuals more room to pass on wealth tax-free, but it does not replace estate planning. Families should review valuation, trusts, liquidity, taxable gifts, beneficiary designations, and whether an executor should file IRS Form 706 to preserve portability.

1. What the $15 Million Threshold Really Measures

The exemption applies to the combined federal estate tax and gift tax system: lifetime taxable gifts reduce the exemption available for the taxable estate at death. The gross estate may include real estate, investments, cash, insurance, trusts, annuities, business interests, and personal property, valued as of the date of death unless an alternate valuation date applies. Transfers above the available exemption may face federal estate tax at rates up to 40%.

2. The $3 Million Gift Example: Simple Math, Real Caveats

Assume a parent has made no prior taxable gifts and gives a child $3 million in 2026. Because the gift exceeds the annual exclusion, it generally uses lifetime gift tax exemption. If the full $3 million counts against the exemption, the parent has $12 million remaining for later taxable gifts or transfers at death.

Prior taxable gifts, gift splitting, valuation adjustments, retained interests, incomplete gifts, and gift tax paid can change the answer. Large gifts should be supported by appraisals, gift tax returns, and a written planning rationale.

3. Valuation and Liquidity: The Hidden Pressure Points

Valuation drives the tax result. Public securities may be easy to price, but real estate, family companies, artwork, and personal property often need qualified appraisals. A weak valuation can invite IRS scrutiny; an inflated value can waste exemption amount.

Liquidity matters just as much. An estate rich in real estate or business interests may lack cash for estate taxes, debts, expenses, insurance, or equalizing distributions. Families should review life insurance ownership, buy-sell agreements, cash reserves, fiduciary powers, and sale options.

4. Annual Exclusion Gifts, 529 Plans, and Calendar Timing

Annual exclusion gifts remain a practical way to reduce an estate over time. In 2026, one donor may gift $19,000 per beneficiary without using lifetime exemption, and married couples may make combined gifts of $38,000 per beneficiary if gift-splitting rules are satisfied.

For education planning, 529 plans add leverage. A donor may elect to treat up to five annual exclusions as made ratably over five years. With a $19,000 annual exclusion amount, that equals $95,000 for one beneficiary, or $190,000 for a married couple, subject to the election and plan limits.

5. Basis Step-Up Tradeoffs: Tax-Free Is Not Always Tax-Smart

Lifetime gifting can reduce a taxable estate, but it can also transfer the donor’s income tax basis to the beneficiary. By contrast, assets included in an estate often receive a new basis measured at date-of-death value, or at the alternate valuation date if validly used. Thus, gifting appreciated real estate, investments, or business interests may save estate tax but increase future capital gains tax.

6. Married Couples and Portability: File Before the Door Closes

Portability allows a surviving spouse to use the deceased spouse’s unused exemption, but it is not automatic. The executor generally must file a timely, complete, properly prepared IRS Form 706 to elect portability, even when no federal estate tax is due. Without that filing, the surviving spouse may lose exemption that could protect beneficiaries and future generations.

7. California-Specific Treatment and Action Steps

California does not currently impose a separate estate or inheritance tax for current deaths, and no California Estate Tax Return is required for deaths after 2004. Still, California families must address probate court exposure, trust funding, Proposition 19 property tax reassessment, fiduciary income tax filings, trustee duties, Medi-Cal Planning, and disputes.

Action steps now:

• Update wills, revocable trusts, powers of attorney, and health care directives.

• Confirm that trusts own the intended assets and beneficiary designations match the plan.

• Obtain valuation advice for real estate, business interests, and personal property.

• Coordinate Pre & Post Nuptial Agreements, portability, lifetime gifts, charitable donations, and 529 contributions.

FAQs

Does the new exemption avoid California Probate?

No. Federal estate tax and California Probate are different systems, so an estate can owe no federal estate tax and still require probate or trust administration.

If my estate exceeds the exemption, is the entire estate taxed?

No. Generally, federal estate tax applies only to the taxable amount above the available exemption after deductions, credits, and prior taxable gifts are considered.

Should California families still use trusts?

Yes. Trusts may address privacy, incapacity, trustee duties, distribution control, probate avoidance, beneficiary protection, Medi-Cal Planning, and estate planning continuity.

Conclusion:

Readers with questions about California wills and trusts, estate planning, probate, trustee responsibilities, or trust administration should contact the trusted California trust and probate attorneys at Moravec Varga & Mooney for a telephonic consultation. The firm assists with California Probate, California Trusts & Wills, Trust Administration, Medi-Cal Planning, Pre & Post Nuptial Agreements, and California Estate Tax questions, and serves all California counties, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz, and beyond. Call (626) 793-3210 or email LV@MoravecsLaw.com.