California doesn't have a state estate tax or inheritance tax — a fact that leads a lot of people to assume estate taxes simply aren't something they need to think about. For most families, that's true. For business owners with significant assets, it isn't quite that simple.
The federal estate tax is a tax on the transfer of a deceased person's assets above a set exemption amount. California has no separate state-level estate or inheritance tax, but federal estate tax and property tax reassessment rules still apply to California residents.
California Has No State Estate Tax
This part is straightforward: California does not impose its own estate tax or inheritance tax. Whatever you leave to your heirs is not separately taxed by the state simply because you died a California resident.
The Federal Estate Tax Still Applies
The federal government imposes an estate tax on estates above a specific exemption amount, which is adjusted periodically and set to change again under current law. Most estates fall well under this threshold and owe nothing. Business owners, especially those whose company represents a large part of their net worth, are more likely to approach or exceed it — particularly when the business itself is difficult to value precisely.
Property Tax Reassessment Is the Bigger California Issue
For most Californians, the more immediate estate-related tax concern isn't the federal estate tax — it's property tax reassessment. California's Proposition 13 keeps property tax assessments low relative to market value for long-held property, but a transfer at death can trigger reassessment to current market value unless a specific exclusion applies.
Since Proposition 19 changed the rules on parent-child property transfers, fewer transfers now qualify for exclusions than in the past, meaning more inherited property gets reassessed — and taxed accordingly — than it used to.
| Tax Type | Applies in California? |
|---|---|
| State estate tax | No — California has none |
| State inheritance tax | No — California has none |
| Federal estate tax | Yes, above the federal exemption amount |
| Property tax reassessment at transfer | Yes, unless a specific exclusion applies |
What Business Owners Should Actually Plan For
The planning conversation for a business owner usually isn't "how do I avoid California estate tax" — it's making sure the business is valued accurately, coordinating that valuation with the succession and buy-sell documents, and understanding what property tax reassessment might mean for any real estate the business owns or that's held personally.
Worth reviewing periodically:
- Where your estate's value actually falls relative to the current federal exemption
- How your business is valued, and whether that valuation is documented and defensible
- Whether any property transfers you're planning would trigger reassessment
- Coordination between your estate plan, your business succession plan, and your CPA
Key Takeaways
- California has no state estate tax or inheritance tax.
- The federal estate tax still applies above a periodically adjusted exemption amount, which matters more for business owners with significant assets.
- Property tax reassessment at transfer, not estate tax, is the more common California-specific concern.
- Business owners should have their estate's value and their business valuation reviewed periodically, not just once.