Will My Family Owe Taxes When I Die in California?
Thinking about what happens after you’re gone isn’t exactly fun, but understanding the tax side of things can save your family a lot of confusion and potentially a lot of money.
Here’s the good news first: California doesn’t tax us to die - we do not have a state estate or inheritance tax in California! 🎉
That means your loved ones won’t be writing a check to the State of California just because you passed away. But… that’s not the whole story.
What You Do Need to Watch Out For
Even without a California estate tax, there are still a few tax issues your family may face:
Federal Estate Tax
The federal government only applies estate tax if your estate exceeds a certain threshold - currently over $13.99 million for individuals (2025). Most families in California won’t hit that number, but high-value homes and investments can add up quickly, especially in our state.
This exemption will change based on new laws, so what’s true today might not be true next year, or even in a few years.
Income Taxes on Retirement Accounts
If your loved ones inherit retirement accounts like IRAs or 401(k)s, they may have to pay income taxes when they withdraw money. The rules here can get complicated, especially with the 10-year payout rule for most beneficiaries.
Capital Gains Taxes
If your heirs sell property they inherit - like your home - they might have to pay capital gains taxes on any increase in value after your death. The good news? California uses a “step-up” in basis, which can significantly reduce those taxes if the property is sold soon after they inherit it.
Property Taxes
Transferring real estate to loved ones doesn’t always mean a property tax reassessment, but the rules around parent-to-child or grandparent-to-grandchild transfers have changed in recent years (thank you, Proposition 19). The details matter here.
Taxes on Life Insurance
In most cases, the payout to your beneficiaries is completely free from income tax. Life insurance is one of the most tax-friendly assets you can leave behind.
However, there are two important caveats:
If your estate is large enough to be subject to the federal estate tax (currently over $13 million for individuals in 2025), the life insurance payout could be counted as part of your taxable estate potentially pushing you over that limit.
With the right planning, your loved ones can usually receive life insurance benefits quickly and without tax headaches.
Why Planning Matters
The truth is, tax laws change. We know what’s accurate for 2025 will be changing next year - and may continue to change in the years ahead. Having a clear plan in place now helps make sure your family won’t be surprised by a bill they weren’t expecting.
✅ The easiest way to protect them is to have a conversation now about what your estate might look like in the current tax landscape.
Let’s Talk About Your Family’s Situation
Every family’s picture is different. We can walk you through what taxes, if any, your loved ones might owe, and what you can do today to make things easier for them for the tomorrows ahead.
📞 Give us a call at (619) 273-3329 to chat and receive a free personalized look at what the best plan forward is for you and your family.
