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Dealing with the loss of a loved one is hard enough. The last thing you want to worry about is a confusing legal process called probate, especially when taxes get involved. It can feel overwhelming, with unfamiliar terms and a lot of paperwork. You might be wondering what taxes need to be paid, who has to pay them, and how much it’s all going to cost.
The good news is that it’s not as scary as it sounds once you break it down. This guide is here to walk you through the tax implications of probate in California in plain, simple English.
We’ll talk about what taxes you can expect, which ones you don’t have to worry about, and how planning ahead can make a huge difference for your family. We’ll also cover the common questions people have, like how much does probate costs in California, and what you can do to make the process smoother and less expensive.
Let’s start with some great news. A common fear is that the government will take a large chunk of an inheritance through taxes. However, as Moravecslaw points out, California does not have a state inheritance tax. This is a key piece of information. An inheritance tax is a tax that the person receiving the assets (the beneficiary) has to pay. In California, you don’t have to worry about this.
Furthermore, California also doesn’t have its own state-level estate tax. An estate tax is paid by the deceased person’s estate before the assets are distributed to the heirs. So, when it comes to state-level taxes specifically targeting inheritances or estates, you are in the clear. This is a major relief for many families and a crucial part of understanding California inheritance tax laws for 2025.
But that doesn’t mean there are no taxes involved at all. The taxes you do need to be aware of are mostly federal taxes or other types of taxes that come up during the probate process.
While California doesn’t have an estate tax, the federal government does. This often causes confusion. The important thing to know is that this tax only applies to very large estates. For 2024, the federal estate tax exemption was $13.61 million per individual. This means an estate had to be worth more than that amount before any federal estate tax was due.
The current increased exemption is set to “sunset” at the beginning of 2026, which means it will be cut roughly in half unless new legislation is passed. For most families, their estate’s value will fall well below this high threshold, meaning no federal estate tax will be owed. However, for those with high-value assets, this change requires careful planning. The estate’s personal representative, or executor, would be responsible for filing a federal estate tax return (Form 706) if the estate’s value exceeds the exemption limit.
Even if your business assets fall below the current federal exemption, tax laws can change. Proactive planning is key to protecting your company’s long-term goals. To explore your options and create a resilient plan, a call to Bay Legal PC at (650) 668-8000 is your first step toward an introductory, no-obligation meeting.
So, if there’s no California inheritance tax and the federal estate tax is rare, what taxes are we talking about? During probate, there are a few common types of taxes that the executor of the estate must handle.
Just because a person has passed away doesn’t mean they are off the hook for the income they earned while they were alive. The executor must file a final federal and state income tax return for the deceased, covering the period from the beginning of the year to the date of their death.
This is a tax that often surprises people. After a person dies, their assets are gathered into an estate. According to Yonano Law, if the estate earns more than $600 in revenue from the sale of probate assets, it becomes its own taxable entity. This income could come from a variety of sources, like rent collected from real estate properties, dividends from stocks, or interest from bank accounts.
If the estate generates more than $600 in gross income during the year, the executor must file a federal “Fiduciary” income tax return (Form 1041) and a California Fiduciary Income Tax Return (Form 541). The taxes are paid from the estate’s funds before any money is distributed to the beneficiaries.
This tax comes into play when an asset from the estate is sold, like a house or a stock portfolio. The good news is that heirs often benefit from a rule called the “stepped-up basis.”
Here’s how it works in simple terms: Let’s say your parents bought a house for $100,000 decades ago. When they pass away, the house is now worth $800,000. That $800,000 becomes the new starting value, or “basis.” If you decide to sell the house shortly after for $810,000, you would only owe capital gains tax on the $10,000 profit you made—not on the $700,000 it appreciated over the years. As Moravecslaw explains, this step-up in basis can be a huge tax saver.
This is one of the most significant tax implications for those inheriting real estate in California. Normally, when property changes hands, the county tax assessor reassesses it at its current market value, which can lead to a much higher property tax bill.
Proposition 19, which took effect in 2021, changed the rules for parent-to-child transfers. Now, to keep the lower property tax basis, the child who inherits the home must use it as their primary residence within one year. If they decide to rent it out or use it as a vacation home, the property will likely be reassessed, and the property taxes could go up substantially.
As you can see, managing an estate’s tax obligations is more than a simple filing. For business owners, these details are critical to preserving asset value. Call Bay Legal PC at (650) 668-8000 to schedule a no-obligation conversation and determine if a custom succession plan is the right fit to protect your company.
This is a critical question because it changes how assets are distributed and who is in charge. When someone dies without a will, it’s called dying “intestate.” In this situation, California law decides who gets what. This process is known as “intestate succession.”
According to Keystone Law Group, California’s intestate succession laws are outlined in “Probate Code sections 6400–6455.” These laws set a clear hierarchy for who inherits the property. The rules prioritize the closest surviving relatives.
If no relatives can be found, the estate “escheats” to the state of California. The court will appoint an administrator to manage the estate, and the process will still go through probate. The key takeaway is that what happens if you die without a will in California, you lose all control over who inherits your property.
It’s important to note that not every estate must go through this formal court process. Certain small estates may qualify for simplified procedures, though most estates passing via a will do require probate.
After learning about the costs, delays, and public nature of probate, most people want to know how to avoid it. The most common and effective tool for this is a revocable living trust.
By avoiding probate in California with a living trust, you create a legal entity that holds your assets for you while you’re alive and then seamlessly transfers them to your chosen beneficiaries after you pass away. Because the trust owns the assets, there’s nothing to probate. A person you name as your “successor trustee” takes over and distributes the assets according to your instructions, without any need for court intervention.
This avoids the statutory fees, keeps your family’s financial affairs private, and can save your loved ones a tremendous amount of time and stress. Other tools like joint ownership and beneficiary designations can also help certain assets avoid probate, but a living trust is the most comprehensive solution for most people.
For those navigating the probate process, it can be tempting to handle it alone. However, the tax laws and legal procedures are complex. An innocent mistake can lead to delays or even personal liability for the executor. Seeking advice from a professional who handles California trust and estate planning matters can help you navigate these challenges.
A living trust is a powerful tool, but its success depends on a custom design that fits your unique business and family. To explore how a tailored plan can safeguard your company’s future, your no-obligation planning session with Bay Legal PC is available by calling (650) 668-8000.
When people ask how much does probate costs in California, they’re usually thinking about taxes. But the statutory fees for the executor and their attorney are often the biggest expense. These fees are set by state law and are calculated based on the gross value of the estate’s assets. This means the value of the assets before any debts are paid off.
For example, if an estate has a home worth $800,000 with a $300,000 mortgage, the fees are based on the full $800,000, not the $500,000 of equity. These fees can add up quickly. On top of that, there are other costs, like court filing fees, appraisal fees, and fees for certified copies of documents. These expenses are all paid from the estate’s assets, reducing the amount left for the beneficiaries.
Navigate the complexities of probate with expert advice on tax implications for heirs and estate administration.
California has no state inheritance tax, but other taxes may apply when you inherit a house. You could face federal estate taxes, capital gains tax if you sell for a profit, and higher property taxes due to reassessment under Proposition 19. Understanding the “step-up in basis” and current exemptions is essential for estimating your total tax liability.
To retain your parents’ low property tax rate in California under Proposition 19, you must use the inherited house as your primary residence and file for the parent-child exclusion on time. Failing to meet these requirements will trigger a reassessment to the current market value, increasing your property tax bill.
Disclaimer: The answers provided above are for informational purposes only and do not constitute legal or tax advice. Tax laws and regulations change frequently, and their application depends on your individual circumstances. For advice that addresses your situation, please consult a qualified attorney or tax professional. Reading this content does not create an attorney-client relationship.