The Impact of Recent Tax Law Changes on Estate Planning

Estate planning is not a one-time task. In California, where state and federal tax laws shift frequently, planning strategies that once worked may no longer achieve the same results. Recent changes in tax law have reshaped how families and individuals should think about protecting assets, reducing tax burdens, and passing on wealth. At Cava & Faulkner, Attorneys at Law, we focus on making these complex updates easy to understand and apply to real-life situations.

Why Tax Law Changes Matter for Estate Planning

Every estate plan in California connects to state and federal tax rules. Changes in laws can alter how much of an estate goes to heirs versus how much goes to taxes. For example, the federal estate and gift tax exemption is scheduled to decrease in 2026, which could impact California residents with larger estates. Even families who believe their assets fall below the threshold may be surprised once real estate values, retirement accounts, and business interests are included.

California does not currently impose a state-level estate tax. But because property values are high, federal tax changes can hit harder here than in other states. For that reason, reviewing and updating your estate plan regularly is key to ensuring your loved ones are provided for.

The Federal Estate and Gift Tax Exemption Shift

The Tax Cuts and Jobs Act of 2017 temporarily increased the federal estate and gift tax exemption to historically high levels. For 2025, that exemption sits at $13.61 million per individual. But beginning in 2026, it is expected to drop to around $6–7 million per person, adjusted for inflation.

What does this mean for California families?

Individuals with estates valued near or above the reduced limit may face significant estate taxes if they do not act before the exemption shrinks.
Married couples could see even greater impact, since unused portions of the exemption can be transferred between spouses through “portability.”

By planning now, strategies like lifetime gifting, trust creation, or charitable giving can help lock in today’s higher exemption levels before the law changes.

How California’s Community Property Laws Interact With Federal Changes

California is a community property state, which means assets acquired during marriage are generally considered jointly owned. This rule can have powerful tax advantages, especially when combined with federal step-up in basis rules. When one spouse passes away, community property receives a full step-up in basis, not just half. This adjustment can greatly reduce capital gains taxes for the surviving spouse or heirs when assets like real estate are sold.

But, recent federal tax shifts may influence how families use this rule. For example, if exemption amounts fall, some couples may benefit from shifting property into certain types of trusts to preserve flexibility and avoid unnecessary taxes. Without a review, existing plans might miss opportunities to maximize community property benefits under California law.

Trusts and Tax-Efficient Planning Tools

Trusts continue to play a central role in California estate planning. With upcoming tax law changes, their importance only grows. Different types of trusts can help reduce exposure to estate taxes, avoid probate, and ensure assets are distributed according to personal wishes. Some common approaches include:

Irrevocable trusts move appreciating assets outside of an estate, reducing taxable value.
Charitable remainder trusts provide income during life while supporting charities and reducing taxes.
Generation-skipping trusts to preserve wealth for grandchildren while minimizing transfer taxes.

California families with real estate, business ownership, or significant retirement accounts often benefit from integrating these tools into their estate plans. Even modest estates can use trusts strategically to avoid probate under California’s Probate Code and provide smoother transitions for heirs.

Income Tax Considerations in California

Estate planning is not only about estate and gift taxes. In California, income tax planning is also critical. The state has some of the highest income tax rates in the country. When estates or trusts are structured without care, beneficiaries may end up paying more in state income taxes than necessary.

For example, certain trusts accumulate income at high federal tax rates if not distributed properly. Coordinating trust distributions with California income tax rules can help beneficiaries keep more of their inheritance. By balancing estate tax reduction with state income tax efficiency, we create plans that align with a client’s broader financial goals.

Why Reviewing Your Plan Now Matters

Waiting until laws officially change in 2026 could leave families scrambling to update plans under time pressure. Reviewing your estate strategy now provides a clear picture of how new rules may affect your wealth and your loved ones. It also allows time to make thoughtful decisions, rather than rushed choices.

Many Californians created plans years ago that no longer reflect their financial situation or the law. Without updates, those plans may unintentionally increase taxes or create complications for heirs. A proactive review ensures that your plan remains effective, personalized, and tax-efficient.

Schedule a Free Consultation With Cava & Faulkner

At Cava & Faulkner, Attorneys at Law, we believe estate planning should bring peace of mind, not confusion. We offer free consultations to walk through your goals, explain how recent tax law changes may affect you, and explore solutions that fit your unique circumstances. Whether you need to create a new plan or update an existing one, we take the time to make sure you feel confident about your decisions.

Call us today at 916-831-7565 to schedule your free consultation and learn how to safeguard your estate in light of upcoming tax law changes. Together, we can build a strategy that keeps your family’s future secure.