California Senate Considers Reviving Estate Tax

In 2001, the California legislature decided to phase out the state’s estate tax over a four-year period.

This means that for California residents who died on or after January 1, 2005, there is no state estate tax. But the California Senate is now reconsidering this position in light of recent changes to the federal estate tax. On March 26, 2019, Sen. Scott Wiener of San Francisco introduced Senate Bill 378. This bill calls for a new statewide estate tax starting in January 2021. However, California voters previously approved an initiative in 1982 that prohibits any new estate tax laws. SB 378 therefore calls for a “special election” to repeal the earlier vote.

If approved by the legislature and the voters, SB 378 would impose an estate tax at a much lower threshold than federal law.

As of 2018, federal law “exempts” the first $11.4 million of a deceased individual’s estate. This exemption is doubled for married couples to $22.8 million. Wiener’s bill would only exempt $3.5 million for individuals and $7 million for couples. The actual estate tax would be 40 percent, which is the same as the current federal rate. Although commonly referred to as the “estate tax,” SB 378 covers situations other than a person’s death. The 40 percent tax would also apply to gifts and other transfers made during a person’s lifetime. The same $3.5/$7 million exemption levels would apply. 

Revenue raised by this new estate tax would go towards a “Children’s Wealth and Opportunity Building Fund.” SB 378 states the fund will “directly address and alleviate socio-economic inequality.”

The bill’s introductory language notes “intergenerational wealth transfers … have kept marginalized families from building wealth.” The fund would therefore “address the racial wealth gap,” particularly with respect to “Black and Latino households.” San Francisco estate planning attorney Milla L. Lvovich said SB 378 is just the latest volley in the long-running battle over estate taxes. “Some people see the estate tax as an attack on wealth, especially family businesses. Others, such as Sen. Weiner, view the current high federal exemption as promoting wealth inequality.”

But from a practical standpoint, Lvovich emphasized the estate tax will not affect most California families. “Based on the most recent IRS figures, only around 2,000 California estates are required to file federal returns each year. And only about half of those estates ended up paying any tax.”