OBBBA Estate Tax Changes: What California Families Need to Know in 2026

What OBBBA Changed About the Estate Tax

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the higher federal estate and gift tax exemption permanent. For 2026 the exemption is $15 million per individual. A married couple can shelter up to $30 million combined by using both exemptions or electing portability. The rate above the exemption stays at 40%, and OBBBA removed the scheduled 2026 reduction.

OBBBA did three things that matter for estate tax. Here is the plain-language version.

• First, it set the basic exclusion amount at $15 million per individual under IRC Section 2010(c)(3)(A). That replaced the old $5 million statutory baseline that the 2017 Tax Cuts and Jobs Act had temporarily doubled.
• Second, it removed the sunset. The exemption no longer drops after 2025.
• Third, it set inflation indexing to begin in 2027, using 2025 as the base year.

For the Professional Planner reading this: OBBBA is Public Law 119-21, effective for decedents dying and gifts made after December 31, 2025. (The formal short title was dropped during Senate amendment, but the law is still widely called the One Big Beautiful Bill Act.) You can confirm the current 2026 figures in IRS Revenue Procedure 2025-32, and read more about the federal estate tax exemption amount on our site.

The 2026 Sunset Everyone Worried About Is Gone

No. The widely predicted 2026 estate tax sunset did not take effect. Under prior law (the 2017 Tax Cuts and Jobs Act), the exemption was scheduled to roughly halve at the end of 2025. OBBBA repealed that scheduled reduction in July 2025 and made the higher exemption permanent. There is no looming drop to plan around.

So where did the fear come from? The 2017 tax law built in an expiration date. The doubled exemption was always set to revert after 2025. That is why so much content from 2023 and 2024 warned about a deadline.

OBBBA replaced that ending. The reduction is gone, and the higher exemption is now the law.

One honesty note matters here. In tax law, permanent means there is no scheduled expiration. It does not mean the figure can never change. A future Congress could amend it. So we use careful language and plan around current law, not predictions.

In our experience, some California families set up trusts in 2023 and 2024 specifically to beat a deadline that never arrived. That does not always mean the planning was wasted. It does mean it is worth a fresh look under current law.

The 2026 Federal Estate and Gift Tax Numbers

Here are the figures that apply for 2026, all confirmed against IRS Revenue Procedure 2025-32.

In plain terms, the exemption is the amount you can transfer before any federal estate or gift tax applies. It covers what you leave at death plus what you give away during life, combined. Cross that line, and the 40% rate applies only to the excess.

One clarification matters for couples. The $30 million figure is not automatic. It is two separate $15 million exemptions. A couple captures the full amount through planning or by electing portability at the first death. You can confirm every 2026 figure in IRS Revenue Procedure 2025-32, the same source the table above relies on.

Does California Have a State Estate Tax? (No)

No. California has no state estate tax, no inheritance tax, and no state gift tax. California voters repealed the state inheritance and gift taxes in 1982 through Proposition 6, which also bars state and local inheritance taxes. The residual pick-up estate tax has collected nothing since the federal credit it depended on ended for 2005 deaths. California residents face only the federal estate tax.

Let us address a common misconception directly. Many people, and some out-of-state advisors, assume California taxes inheritances. It does not. There is no California death tax of any kind for residents today.

Here is the accurate mechanics for the Professional Planner. That repeal came through an initiative statute, Proposition 6 of June 1982, which also enacted the pick-up estate tax now codified at California Revenue and Taxation Code Section 13301. California’s former estate tax was only a pick-up tax equal to the federal state death tax credit. Once that federal credit was phased out and replaced by a deduction under IRC Section 2058, no California estate tax has been owed. This is a statutory and federal-credit result, not a constitutional one. You can review Revenue and Taxation Code Section 13301 on the California Legislative Information site.

One caveat applies to multi-state owners. If you own real property in a state that levies its own estate or inheritance tax, that out-of-state property may face state-level exposure. Several states have changed these rules recently, so confirm current law for any state where you hold property. For a multi-state estate, a quick check with counsel is worth it.

What OBBBA Changed and What It Did Not

This is the section worth bookmarking. The table below separates what moved from what stayed the same.

Two of the unchanged items matter most to ordinary California families. The first is step-up in basis. The second is the annual gift exclusion. Most families will never touch the $15 million exemption. Nearly all of them benefit from the step-up.

Step-Up in Basis Survived, and Matters More Than the Exemption for Most Families

Step-up in basis is simple once you see it. Assets you own at death generally get a new income-tax basis equal to fair market value (IRC Section 1014). That can erase decades of unrealized capital gain for your heirs.

California adds a major bonus through community property. A married couple’s community property generally gets a full step-up on both halves at the first spouse’s death (IRC Section 1014(b)(6)). It then steps up again at the second death. This advantage is independent of the estate tax exemption. Cornell Law School’s Legal Information Institute summary of IRC Section 1014 explains the basic rule.

Here is why this beats the exemption for most readers. A San Diego County couple with a long-held home worth far below $15 million will likely owe zero estate tax anyway. But the step-up can save their children substantial capital gains tax. Good planning protects the step-up, which is one reason certain irrevocable-gift strategies do not fit a non-taxable estate.

Gifts in 2026: Annual Exclusion and Lifetime Exemption

The 2026 annual exclusion is $19,000 per recipient. A married couple splitting gifts can give $38,000 per recipient. Gifts at or under the annual exclusion generally need no gift tax return. Electing gift-splitting itself does require a Form 709.

Gifts above the annual exclusion draw down the same $15 million you can use at death. A Form 709 gift tax return tracks the cumulative use over your lifetime. The annual exclusion and the lifetime exemption work together, not separately.

One rule surprises people. The unlimited marital deduction does not apply to gifts to a non-citizen spouse. The 2026 annual exclusion for those gifts is $194,000 instead.

The GST Tax Under OBBBA, and Why It Is Different

The generation-skipping transfer (GST) tax is the one most readers can skip. It applies to transfers that skip a generation, such as gifts to grandchildren. For 2026 the GST exemption is also $15 million per individual, with a flat 40% rate. It is permanent and indexed from 2027, just like the estate tax exemption.

Most California families will never need to think about this. For those who do, our overview of estate planning for high-net-worth estates walks through the trust strategies that preserve GST exemption.

What This Actually Means for a California Family

Here is the bottom line for almost everyone reading this. OBBBA confirms that federal estate tax is not your problem. With a $15 million per-person exemption and no California state death tax, the planning conversation shifts. It moves away from estate tax and toward the things that actually affect California estates.

The real cost of dying in California is probate, not estate tax. A family far below the $15 million exemption can still face tens of thousands in statutory probate fees. This applies to a normal home-and-savings estate.

The numbers come from statute. California Probate Code Sections 10800 and 10810 set identical sliding-scale fees for the personal representative and the attorney. Combined statutory fees on a $1 million estate total roughly $46,000. These fees are computed on the gross value of the estate, with mortgages and other debts ignored. So a financed home does not reduce them. You can see the full schedule on our California probate fees page.

So what should a non-taxable California estate focus on? The priorities are clear, and none of them involve the estate tax.

• Avoid probate with a funded revocable living trust, so your family skips the court process and the statutory fees.
• Protect the step-up in basis, which can erase large capital gains for your heirs.
• Plan for incapacity with a durable power of attorney and an advance health care directive.
• Handle Prop 19 inherited property in California if a home will pass to your children.
• Name guardians and structure inheritances for minor or young beneficiaries.

In our San Diego County practice, OBBBA did not change the plan for most families at all. What it changed was the conversation. We can stop talking about a federal tax that will never touch them. Instead we focus on probate avoidance, the step-up, and Prop 19, which actually will.

If You Already Planned for the Sunset, What Should You Do Now?

Some families made gifts or set up irrevocable trusts in 2023 to 2025 to beat the expected sunset. If that is you, do not assume the planning was wasted, and do not rush to unwind anything. Some of it still serves real goals, such as removing future appreciation from your taxable estate, creditor protection, and multigenerational transfer.

Still, a review is worth your time. Some sunset-era moves traded away a future step-up in basis to lock in an exemption that, as it turns out, was never going to disappear. For a now clearly non-taxable estate, that trade may no longer make sense. There are modification, decanting, and other paths to evaluate. Our California trusts complete guide covers how these trust structures fit together.

If you set up an irrevocable life insurance trust or a similar vehicle during the deadline rush, the trust may still do useful work. The right move is a fresh look, not a reflex to unwind.

For families who were waiting to act, the deadline pressure is gone. That is good news. But no deadline is not the same as no need to plan. Probate, incapacity, and step-up planning are still needed in California.

Other OBBBA Provisions Estate Planners Are Watching

OBBBA touched more than the estate tax. A few provisions matter to planners and to clients with businesses or significant income. Here is the short version.

• Step-up in basis (IRC Section 1014) was preserved unchanged. We restate it here because readers keep asking.
• Qualified Small Business Stock (IRC Section 1202): for stock issued after July 4, 2025, OBBBA added a tiered gain exclusion. The exclusion is 50% at three years, 75% at four years, and the full 100% at five years. It raised the per-issuer gain cap from $10 million to $15 million. It also raised the corporate gross-asset ceiling from $50 million to $75 million. Stock issued before that date keeps the old 5-year, $10 million, $50 million rules.
• SALT deduction cap: raised to $40,400 for 2026, with a phase-down for higher-income taxpayers above a high MAGI threshold. The cap rises 1% per year through 2029, then reverts to $10,000 in 2030. This is a high-income California item, not an estate tax item.

When to Talk to a California Estate Planning Attorney

Most California families do not need a tax-driven plan after OBBBA. A few situations do call for individualized advice.

• Your combined estate is approaching or above $15 million per person, up to $30 million for a couple. You want to use the now-permanent exemption deliberately.
• You made sunset-era gifts or set up irrevocable trusts, and you want to confirm they still fit your goals.
• You want to make sure your family avoids probate and preserves the step-up in basis.
• You own out-of-state property in a state that has its own estate or inheritance tax.
• You have not updated your plan since before OBBBA passed in July 2025.

For most California families, OBBBA is good news that simplifies the picture. No state death tax. A $15 million federal exemption almost no one will reach. A preserved step-up in basis. Opelon LLP helps San Diego County families turn that clarity into a plan that fits current law. The focus is probate avoidance, incapacity planning, and protecting what passes to the next generation.

Frequently Asked Questions about the OBBBA Estate Tax Changes