Testators worried about their legacies may create estate plans that address their debts and potential future tax obligations. For some people with intergenerational wealth, real estate or business holdings, estate taxes may be a concern.
Although California does not collect a state-level estate tax, California estates are subject to federal taxes. In 2026, estates worth $15 million or more might be subject to federal estate taxes. Their loved ones can lose thousands of dollars or more to the government. What is the federal estate tax rate?
The tax rate is progressive
Unlike some types of taxes that may always have the same rate, estate taxes are progressive. There is an exemption threshold. Once the total value of the estate is greater than that exemption amount, the estate likely owes at least 18% of its total value to the federal government.
However, the more the estate exceeds the federal threshold, the higher the tax rate that applies. Currently, the maximum federal estate tax rate is 40%. People need to plan carefully to limit what assets become part of their estate if they want to minimize the tax rate that applies or completely avoid estate taxes.
Transferring certain property to a trust is a common strategy for reducing or avoiding estate taxes. People also add co-owners for major assets, add transfer-on-death designations for financial accounts and make gifts to loved ones or charities while they are still alive.
Having the right estate planning guidance can help those with valuable resources create trusts, arrange for strategic gifts and create an overall estate plan that helps ensure that their assets pass to their loved ones rather than the federal government.