When someone passes away, their assets typically pass to their loved ones. However, many people are unaware that taxes can still be applied after death. Terms like estate tax and inheritance tax often get used interchangeably, but they mean different things, and who pays them depends on where you live and how much you receive.
If you’re in California, you may wonder if either of these taxes affects your family. Here’s what you need to know about the estate tax vs. inheritance tax, especially in the context of California law.
What Is an Estate Tax?
An estate tax is a tax on the total value of a person’s estate at the time of their death. This includes money, property, investments, and other assets. The tax is paid by the estate itself, before anything is distributed to heirs.
There is no estate tax in California, but the federal estate tax may still apply. As of 2025, the federal exemption is $13.99 million per individual (or $27.98 million for married couples). Only estates that exceed that threshold are subject to the tax, which can be as high as 40% on the amount over the exemption.
Key points:
- Paid by the estate before assets are passed on
- Based on the total estate value
- No estate tax at the state level in California
- Federal estate tax only affects large estates
What Is an Inheritance Tax?
An inheritance tax is different. Instead of taxing the estate as a whole, an inheritance tax is imposed on the individual beneficiaries who receive property or money from the estate. The tax is calculated based on what each person inherits.
California does not have an inheritance tax. However, some states, including Maryland, Kentucky, Nebraska, New Jersey, and Pennsylvania, do.
If a California resident inherits property from someone who lived in a state with an inheritance tax, they may still owe tax based on that state’s laws. Also, some states charge different rates depending on how closely related you were to the person who died. Spouses and children often receive favorable treatment or are fully exempt.
What to know:
- Paid by the beneficiary, not the estate
- California doesn’t impose this tax
- May apply if you inherit from someone in another state
Estate Tax vs. Inheritance Tax: Key Differences
While both taxes deal with transferring wealth after death, they work in very different ways. Here’s a quick breakdown of the estate tax vs. inheritance tax difference:
| Feature | Estate Tax | Inheritance Tax |
| Who pays | The estate itself | The individual beneficiary |
| When it’s assessed | Before assets are distributed | After inheritance is received |
| Applies in California? | No (federal only, if applicable) | No |
| May apply elsewhere? | Yes, if federal limit is passed | Yes, if inheriting from certain states |
The key difference is that estate tax is about the overall size of the estate, while inheritance tax is about who inherits and how much they receive.
Why It Still Matters in California
Even though California doesn’t impose either of these taxes, understanding how they work is still important, especially if you:
- Own a large estate that could trigger the federal estate tax
- Own property in states with inheritance taxes
- Expect to receive an inheritance from someone who lived in a state that imposes them
With proper planning, many families can avoid or reduce the impact of these taxes. Tools like irrevocable trusts, lifetime gifts, and charitable donations can help preserve more of your estate for your loved ones.
Estate planning isn’t just for the wealthy. Even moderate estates can face tax issues under certain circumstances.
Talk to a California Estate Planning Attorney
Understanding the difference between estate tax and inheritance tax is an essential part of protecting your family’s financial future. While California doesn’t currently impose either of these taxes, federal rules and out-of-state inheritances can still have an impact.
At OC Wills & Trust Attorneys, we help California families plan wisely so they can pass on more to the people they care about. Whether you’re updating an existing estate plan or starting from scratch, our team is here to guide you. Contact us today to schedule a consultation.
