The One Big Beautiful Bill Act permanently raised the federal estate tax exemption to $15 million per individual, effective January 1, 2026, giving California families new opportunities to protect wealth and transfer assets to future generations through strategic planning.
Key Takeaways:
- The federal estate and gift tax exemption increases to $15 million per person ($30 million for married couples) in 2026, with no sunset provision.
- California has no state estate or inheritance tax, but the 40% federal estate tax rate still applies to amounts exceeding the federal estate tax exemption.
- Strategic gifting and irrevocable trusts remain valuable for locking in growth outside your taxable estate.
If you spent the last few years watching the calendar and wondering whether the federal estate tax exemption would really drop in half, you can finally exhale. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently raised the exemption and eliminated the sunset provision that had estate planners and high-net-worth families on edge since 2017.
But “permanent” in tax law is only as lasting as the next Congress allows. Even with the higher exemption, families with significant assets still face real exposure to a 40% federal estate tax if they don’t plan carefully. For California families in particular, where real estate values alone can push an estate into taxable territory, understanding these changes is more important than ever.
What Changed Under the New Law
The Tax Cuts and Jobs Act of 2017 temporarily doubled the federal estate and gift tax exemption to over $11 million per person. That increase came with an expiration date: January 1, 2026. Without new legislation, the exemption would have reverted to approximately $7 million per individual, suddenly exposing many more families to estate taxes.
The One Big Beautiful Bill Act changed the equation. Starting January 1, 2026, the federal estate, gift, and generation-skipping transfer tax exemption rises to $15 million per person. For married couples who take full advantage of portability, up to $30 million can pass to heirs free of federal estate tax. Beginning in 2027, the IRS will adjust the exemption annually for inflation.
Most significantly, there is no sunset provision this time. The higher exemption is now the baseline going forward, though future administrations and Congresses could always revisit the law.
What Stayed the Same
While the exemption amount increased, several key aspects of the federal estate tax system remain unchanged:
- The top federal estate tax rate is still 40% on amounts exceeding the exemption.
- Portability rules still require filing a federal estate tax return to elect the unused deceased spouse’s exemption, even if no tax is owed.
- The annual gift tax exclusion remains at $19,000 per recipient for 2026.
- Step-up in basis rules for inherited assets continue to apply, reducing capital gains when heirs sell.
- Valuation discounts for family limited partnerships and closely held businesses remain available.
Why California Families Still Need to Plan
California does not impose a state estate tax or inheritance tax, which puts residents in a more favorable position than those in states like Washington, Oregon, or Massachusetts. However, the federal estate tax still applies to California residents whose estates exceed the exemption threshold.
Estate planning isn’t just about today’s numbers. It’s about protecting your family from uncertainty. What if your assets appreciate significantly over the next decade? What if a future Congress decides to lower the exemption? The families who protect their legacies are the ones who plan proactively rather than reactively, building in flexibility for whatever changes may come.
Strategic Moves That Still Make Sense
Even though the “use it or lose it” urgency has lifted, several wealth transfer strategies remain valuable for high-net-worth families looking to minimize estate tax exposure and maximize what passes to the next generation.
- Lifetime Gifting: When you gift appreciating assets today, all future growth occurs outside your taxable estate. Transfer $5 million in stock to an irrevocable trust, and if it doubles over 15 years, your estate avoids tax on that $5 million of appreciation.
- Spousal Lifetime Access Trusts (SLATs): These irrevocable trusts allow one spouse to make a gift for the benefit of the other spouse and their descendants. The gifting spouse uses their exemption, while the beneficiary spouse can still access trust assets if needed. SLATs require careful drafting, especially in California’s community property framework.
- Grantor Retained Annuity Trusts (GRATs): A GRAT allows you to transfer assets while retaining an annuity payment for a set term. If the assets outperform the IRS-assumed rate of return, the excess passes to beneficiaries with little or no gift tax.
- Irrevocable Life Insurance Trusts (ILITs): Life insurance proceeds owned by an ILIT stay outside your taxable estate, providing liquidity for heirs to pay any estate taxes or expenses without selling family assets.
- Charitable Planning: Donor-advised funds and charitable remainder trusts reduce your taxable estate while supporting causes you care about and providing income tax benefits during your lifetime.
California-Specific Considerations
California’s community property laws create unique planning opportunities. When one spouse dies, the surviving spouse’s community property tax receives a full step-up in basis for both halves of the asset, not just the deceased spouse’s share. This can dramatically reduce capital gains tax if the surviving spouse later sells the property. Maintaining proper community property classification through a joint revocable living trust preserves this valuable benefit.
Additionally, Proposition 19 changed property tax rules for inherited homes. Children who inherit a parent’s primary residence may face property tax reassessment unless they use it as their own primary residence within one year. For families with highly appreciated real estate, this adds another layer to consider in the planning process.
The Bottom Line
The One Big Beautiful Bill Act provides clarity for families who spent years worrying about the sunset of the exemption. With a $15 million individual exemption now locked in and indexed for inflation, fewer estates will face federal estate tax in the near term.
But tax laws change, asset values fluctuate, and family circumstances evolve. A comprehensive estate plan does more than minimize taxes. It protects your family from probate delays, provides for loved ones with special needs, names guardians for minor children, and ensures your healthcare wishes are honored. The peace of mind that comes from knowing your affairs are in order is worth the effort.
How the Karpel Law Firm Can Guide You
At the Karpel Law Firm, we bring a distinctive approach to estate planning for high-net-worth California families. Darin Karpel’s dual credentials as an Attorney and CPA allow our team to analyze your estate through both legal and financial lenses, identifying opportunities that general practice firms often overlook. With more than 50 years of combined legal experience and an AV Preeminent rating reflecting the highest standards of professional excellence, we deliver sophisticated counsel with the personalized attention of a boutique practice.
Whether you need to update an existing estate plan or understand how the 2026 tax changes affect your specific situation, our team is here to guide you. Contact us today to schedule your complimentary consultation and take the first step toward securing your family’s financial future.