California has not had any kind of a statewide estate, gift, or generation-skipping transfer tax since prior to 2005, however, with the proposal of a new bill introduced by California State Senator Scott Wiener, that could all change.
The goal of Senate Bill 378 is to impose a California estate tax modeled on the federal estate tax, but with a lower exemption rate based on what the federal estate tax exemption was in 2009, $3.5 million ($7 million for married couples) beginning after December 31, 2020. After the exemption is applied, all California transfer taxes will be imposed at a 40% rate.
A credit for all transfer taxes paid to the federal government will be provided to ensure there is no double taxation. As of 2019, the federal estate and gift tax exemption is $11.4 million ($22.8 million for married couples). This means that only estates between $3.5 million and $11.4 million will be subject to the California Tax.
The state expects to generate between $500 million and $1 billion annually. According to a statement released by Mr. Wiener, this revenue would be directed to a newly created special fund with the intention to distribute funds toward programs and services that directly address and alleviate socio-economic inequality and build assets among people who have historically lacked them, including helping low-income children build wealth through savings accounts.
Assuming the California Legislature approves this bill, voters still have a final say at the November 2020 election.
Given that real property values have increased so much in California, voters will have a lot to consider. For many, just owning a home and having moderate retirement savings may subject their loved ones to estate tax as proposed in SB 378.
Even though an estate tax for Californians remains uncertain, having foundational estate planning documents in place is extremely important should you need to do further planning if the law does change. If you would like to review your current estate plan, or if you have questions about creating an estate plan, please contact the Law Offices of Lisa C. Bryant, INC. at (408) 419-1361 for a complimentary estate plan review.
All materials have been prepared for general information purposes only to permit you to learn more about our firm, our services, and the experience of our attorneys. The information presented is not legal advice, is not to be acted on as such, and may be subject to change without notice.