Will Your Kids Pay Inheritance Tax in California?

If you’re planning your estate and wondering whether your children will owe inheritance tax in California, the short answer is no. California does not impose an inheritance tax or estate tax, making it one of the more tax-friendly states for passing on wealth. However, there are still important considerations, including federal estate taxes and other financial implications.

No Inheritance Tax in California

Unlike some states, California does not require heirs to pay taxes on inherited assets. Regardless of the amount, your children will not face any state-imposed inheritance tax when they receive their inheritance.

Federal Estate Tax Considerations

While California does not have its own estate tax, federal estate taxes can apply to large estates. In 2025, the federal estate tax exemption is $13.99 million per person ($27.98 for married couples). This means:

• If your estate is valued below this amount, no federal estate tax will be owed.

• If your estate is valued above this threshold, the excess amount is taxed at rates up to 40% before assets are distributed to heirs.

Since this tax is imposed on the estate itself, your children will not be responsible for paying it directly—but a significant portion of the estate could be reduced before they receive their inheritance.

Other Financial Implications for Heirs

While inheritance tax is not an issue in California, there are other financial aspects to consider:

Capital Gains Tax: If your children inherit assets like real estate or stocks, they likely will benefit from a step-up in basis to the asset’s value at the time of your passing. This can reduce capital gains taxes if they sell the asset later.

Income Tax on Certain Assets: Inherited retirement accounts (like IRAs or 401(k)s) may be subject to income tax when withdrawn. Non-spouse beneficiaries typically must withdraw the full balance within 10 years, which can create a significant tax burden.

Planning for the Future

Even though California does not have an inheritance tax, estate planning is essential to ensure a smooth wealth transfer and minimize federal tax exposure. Consulting with an estate planning attorney or financial advisor can help you develop the best strategy for your family’s financial future. If you have a sizable estate or complex assets, take proactive steps now to ensure your beneficiaries receive the maximum benefit from their inheritance.

Please contact me with any questions.