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A bill before the California legislature seeks to impose an estate tax of 40% on the net value of a decedent’s estate in excess of $3.5 million, with a credit for all federal estate taxes paid by the estate.
Background
In 2017, as Congress debated legislation that ultimately became the Tax Cuts and Jobs Act, and in particular, the proposed repeal of the federal estate tax, California legislation was introduced that would have imposed a California estate tax in place of a repealed federal tax. See our 2017 article, Double Whammy: Federal estate tax repeal could substantially increase tax for California residents. When the federal estate tax was retained in the Tax Cuts and Jobs Act – with a substantially increased exemption (currently $11.4 million per person, adjusted annually for inflation) – the proposed California estate tax was abandoned.
In 2018, supporters of a ballot proposition titled “California Estate Tax for College Access Fund Initiative” sought the required number of signatures from the state’s registered voters to qualify the proposition for inclusion on the 2018 California ballot. The initiative proposed an estate tax ranging from 12-22% on estates in excess of $3.5 million. If passed, the California estate taxes collected would have provided funding for a “Universal College Access Fund”, a high profile political issue. However, the initiative failed to achieve the required number of signatures in time to qualify for the ballot.
Current Status
Now in 2019, a new bill (SB 378) has been submitted by Senator Scott Wiener (who also submitted the 2017 bill) to impose an estate tax of 40% on the net value of a decedent’s estate in excess of $3.5 million with a credit for all federal estate taxes paid with respect to the estate. This seems to imply that the tax will be phased out at the then current federal exclusion amount, currently $11.4 million, but the current language of the bill is vague. For example, it would seem that the maximum tax payable using 2019 exclusion amounts would be $3,160,000. Of course, as with many taxes, it will be easier in the future to increase rates and lower exemptions or raise such ceilings, once enacted into law.
What’s Next
The bill must be passed by the California legislature and signed by the Governor in order to qualify for the 2020 California ballot. We will keep you informed of future developments.
About JMBM Trusts & Estates Group
JMBM’s Trusts & Estates Group focuses on estate planning, wealth transfer planning, trust administration and the resolution of trust disputes. Our law firm has one of the most active trusts and estates practices in California and our clients include individuals and families, and their business interests. JMBM’s Trusts & Estates Group is recognized as a 2019 “Best Law Firm” by U.S. News & World Best Lawyers® with a National Tier 1 status – the highest ranking possible – in Trusts & Estates Law, underscoring the Group’s unique combination of exemplary service and breadth of knowledge in trusts and estates law.
This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.
