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Julie Garber

Estate Taxes by State - Does California Have an Estate Tax?

By August 3, 2009

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Does California have an estate tax? The answer is no, currently California does not collect a state estate tax, although things were different prior to January 1, 2005, when California collected a separate state estate tax, called a "pick up tax," that was actually equal to a portion of the overall federal estate tax bill. California also does not collect a state inheritance tax as it was abolished effective June 9, 1982.

On January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response, some states that used to collect a pick up tax chose to enact laws that allow the state to still collect a state estate tax. But California, like 31 other states, did nothing, as so California no longer collects an estate tax. The number of states that do not have an estate tax used to be 32 until Delaware enacted a state estate tax effective July 1, 2009. For a complete list of the 19 jurisdictions that assess an estate tax at the state level and their current estate tax exemptions, see the State Estate Tax Chart.

It has been estimated that California stands to lose over $5 billion during the next few years due to the phase out of the pick up tax. With California's budget woes constantly in the headlines these days, why doesn't the state simply enact a state estate tax like Delaware just did? Because quirks in California law prohibit the enactment of a state estate tax without voter approval. So don't count on California levying a state estate tax any time soon.

But note that under current federal law, the pick up tax, and therefore the California estate tax, is scheduled to come back in 2011 due to the sunset of EGTRRA. But no one really believes that Congress and President Obama will allow EGTRRA to sunset. Instead, it is anticipated that at the very least a two or three year patch will be enacted that will keep the federal estate tax in place and possibly bring back the pick up tax, which has already been proposed by H.R. 2023, introduced by Rep. Jim McDermott (D-WA) in April 2009.

2011 Update: On December 17, 2010, President Obama signed the Taxpayer Relief Act of 2010 (TRA 2010) into law, which overrode the provisions of EGTRRA with regard to estate taxes. As a result of this new law, the pick up tax was not reinstated, and so California will not collect a state estate tax for the 2011 and 2012 tax years. Nonetheless, the provisions of TRA 2010 are set to sunset on December 31, 2012, in which case the pick up tax, as well as the California estate tax, will return on January 1, 2013. Stay tuned for updates as they become available.

Comments
January 19, 2012 at 4:34 pm
(1) Richard says:

If you enact an estate tax in California, it will be the final nail in the coffin. The wealthy will simply leave the State and take their companies with them. In addition, executives with fortune 500 companies will move their companies to tax friendly states like Texas, Colorado and Arizona. Intel will be gone. You obviously do not understand the repercussions of your statement. The law is gone for a reason.

January 19, 2012 at 9:09 pm
(2) Julie Ann Garber, Esq. says:

Hi Richard, I am not following your comment – the repercussions of which statement? I was simply summarizing the current state of the California estate tax. The law is gone because the California estate tax was tied to federal estate tax laws and those laws were repealed, and quirks in state law prohibit the implementation of a state estate tax that is not tied to the federal tax. Those are the facts.

Best regards,

Julie Ann Garber, Esq.
Your Guide to Wills & Estate Planning
email: wills.guide@about.com
http://wills.about.com

September 22, 2013 at 6:48 pm
(3) Dan says:

Hello – My folks live in Santa Barbara, are in their 80s, and have about $1M in assets. My financial planner here in Maryland recommends they transfer the title of their house to a Qualified Personal Residential Trust to minimize estate tax. I can’t seem to find any info about that. Based on your article I don’t think it’s necessary. Can you comment? Thanks.

September 22, 2013 at 7:24 pm
(4) Julie Ann Garber, Esq. says:

Hi Dan, these articles should help to explain how a Qualified Personal Residence Trust (“QPRT” for short) works and if it makes sense for your parents:

What is a Qualified Personal Residence Trust?
How Does a Qualified Personal Residence Trust Really Work to Reduce Your Estate?
Pros and Cons of Qualified Personal Residence Trusts

Best regards,

Julie Ann Garber, Esq.
Attorney, The Andersen Firm, A Professional Corporation
Guide to Wills & Estate Planning
http://wills.about.com
About.com | Need. Know. Accomplish.

The information contained in this comment is not legal or tax advice and is not a
substitute for legal or tax advice. For legal advice, please consult with an
attorney. For tax advice, please consult with an accountant or tax attorney.

November 10, 2013 at 5:39 pm
(5) Sara says:

Hi:

for someone who lives outside outside of California, and transferred an investment property she owns in CA from her name to a revocable trust, to benefit her and he husband, (she is the trustee) what are the tax consequences upon her death?

November 13, 2013 at 11:16 am
(6) Julie Ann Garber, Esq. says:

Hi Sara, these articles should help to answer your question:

Does California Collect an Estate Tax?

Will You Pay Taxes on Your Inheritance?

Best regards,

Julie Ann Garber, Esq.
Attorney, The Andersen Firm, A Professional Corporation
Guide to Wills & Estate Planning
http://wills.about.com
About.com | Need. Know. Accomplish.

The information contained in this comment is not legal or tax advice and is not a
substitute for legal or tax advice. For legal advice, please consult with an
attorney. For tax advice, please consult with an accountant or tax attorney.

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