Authored by David Kotik
During a recent conversation with a client, the question arose as to whether California currently imposes an estate tax. In response, we confirmed that California does not impose an estate tax. It is worth noting that California has previously imposed an estate tax, and there is no certainty that an estate tax will again be imposed. However, California’s repeal of the estate tax occurred through a ballot initiative known as Proposition 5 in 1982.
Despite being repealed in 1982, there have been attempts to reinstate an estate tax in California. A recent example occurred in 2019 when California State Senator Scott Wiener (D-San Francisco) announced the introduction of Senate Bill 378. Senate Bill 378 would have created a California estate tax modeled on the federal estate tax but with a lower exemption rate of $3.5 million or $7 million for a married couple. The tax rate was to be 40%. Mr. Wiener’s bill did not have support and died.
There are currently 16 states and the District of Columbia which have an estate or inheritance tax and one state has both. The states with an estate tax include Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania had an inheritance tax which is a tax to be paid by a beneficiary on the inheritance. Maryland has both an estate tax and an inheritance tax.
As mentioned before, at some point California may once again have an estate tax; it is likely a matter of time. Fortunately, of the states with an estate or inheritance tax, none of them are prime destinations for Californians migrating to other states. The primary destinations for our clients have been Nevada, Utah, Arizona, Texas, Florida, Idaho, and Tennessee.
With recent efforts made in California to reintroduce an estate tax coupled with the sunsetting provisions of the Tax Cuts and Jobs Act (“TCJA”), it has never been more important to tackle estate tax planning issues. There are various tools that can be implemented to minimize an individual’s federal estate tax liability through thoughtful planning tools. Feel free to reach out to one of our skilled team members to explore planning options tailored for both you and your family.