Estate Tax Reform Under the Trump Administration: What California Families Need to Know

With President Donald Trump well into his new term and Republicans gaining influence in Congress, many California families are wondering how potential changes to the federal estate tax might affect their estate planning. At Clark Allison LLP, we're closely monitoring legislative developments to help California families optimize their estate plans in this changing landscape.

Understanding How Current Estate Tax Laws Affect California Families

As of 2025, the federal estate tax exemption stands at $13.99 million per individual (adjusted annually for inflation), with married couples able to effectively shelter $28 million with proper planning. For most California families, federal estate taxes are not currently a direct concern thanks to these high exemption thresholds.

However, it's important to understand that these elevated exemption amounts are scheduled to sunset after 2025, potentially dropping to approximately half their current levels without legislative intervention. This reduction would bring the exemption much closer to the $7 million range, putting more California families at risk of future estate taxation.

Additionally, California's high property values mean that families often have a significant portion of their wealth tied up in real estate, which can appreciate substantially over time and potentially push estates over exemption thresholds in the future.

Trump's Big Beautiful Bill

With President Donald Trump’s second term underway, and Republicans holding slim majorities in both the House (approximately 220-215) and Senate (53-47), the administration is poised to push forward an ambitious tax plan as part of what Trump has famously called his “big, beautiful bill.” This legislative package aims to extend the 2017 Tax Cuts and Jobs Act (TCJA) provisions, set to expire at the end of 2025, while introducing new tax cuts—such as eliminating taxes on tips, overtime pay, and Social Security benefits. For Californians, particularly those engaged in estate planning, these changes could have significant implications. But how can Trump and the Republicans navigate Congress to make this a reality? The answer lies in a powerful legislative tool: budget reconciliation.

Here’s a breakdown of how reconciliation works, why it’s key to Trump’s tax strategy, and what it could mean for estate planning in California.

What Is Budget Reconciliation?

Budget reconciliation is a special legislative process created under the Congressional Budget Act of 1974. It allows Congress to fast-track legislation related to taxes, spending, and the federal debt limit, bypassing the Senate’s usual 60-vote filibuster threshold. With only 53 Republican senators, Trump’s team can’t overcome a filibuster without Democratic support—support that’s unlikely given partisan divides. Reconciliation, however, requires just a simple majority (51 votes in the Senate, or 50 plus Vice President JD Vance’s tiebreaker), making it the perfect vehicle for a GOP-controlled Congress to enact Trump’s tax agenda.

The process starts with a budget resolution, passed by both the House and Senate, which sets fiscal targets and gives instructions to congressional committees. For example, the House Budget Committee’s February 2025 resolution (H.Con.Res.14) directs the Ways and Means Committee to craft $4.5 trillion in net tax cuts over 10 years, offset by $2 trillion in spending cuts from other committees. Once these instructions are set, committees draft legislation, which the Budget Committee combines into a single reconciliation bill—Trump’s “big, beautiful bill”—for an up-or-down vote.

Will Trump Succeed?

1. Unified Party Control and Leadership Buy

Success hinges on GOP unity. As of March 2025, Republicans hold narrow majorities, but internal divisions—between fiscal hawks like the Freedom Caucus and moderates from swing districts—pose risks. Speaker Mike Johnson and Senate Majority Leader John Thune have rallied behind a single, comprehensive bill, aligning with Trump’s vision over a two-bill approach favored by some senators. Trump’s personal lobbying, seen in his February 2025 calls to sway holdouts like Reps. Spartz and Burchett, has proven effective in securing the 217-215 House vote on the budget resolution. Maintaining this unity through negotiations will be critical.

2. Crafting a Byrd Rule-Compliant Bill

The Senate’s Byrd Rule limits reconciliation to provisions with a direct budgetary impact, excluding extraneous policy changes (e.g., immigration reforms not tied to spending). Tax cuts, like extending the TCJA’s estate tax exemption ($13.99 million per person in 2025) or eliminating taxes on tips, fit neatly within these rules. However, the rule also prohibits deficit increases beyond the 10-year budget window (ending 2034). To comply, Republicans might make tax cuts temporary, expiring by 2033, as they did in 2017, or offset costs with spending cuts or revenue from Trump’s proposed tariffs (e.g., 25% on Canada and Mexico, 10% on China). Creative drafting and consultation with the Senate parliamentarian will be key.

3. Leveraging Political Momentum

Trump’s team is capitalizing on his post-election mandate and the urgency of the TCJA expiration. Without action, taxpayers face a 22% average tax hike in 2026, including a potential drop in the estate tax exemption to around $7 million—hitting California’s high-net-worth families hard. Johnson aims to pass the reconciliation bill by late spring 2025, delivering Trump’s signature by May. This timeline leverages early-term momentum, though delays from “vote-a-rama” amendments or debt ceiling talks could test their resolve.

4. Balancing Tax Cuts with Spending Cuts

The House resolution caps deficit increases at $2.8 trillion over 10 years, requiring $2 trillion in spending cuts to unlock the full $4.5 trillion in tax cuts. Committees must identify savings—possibly from Medicaid or discretionary programs—without touching Social Security or Medicare, per Trump’s pledge. If cuts fall short, tax cuts scale back proportionally. Republicans’ ability to negotiate these offsets, while avoiding backlash from moderates reliant on safety net programs, will determine the plan’s scope.

Other Current Legislative Proposals on Estate Tax Reform

In addition to the big beautiful bill, several Republican lawmakers have introduced bills addressing estate tax reform:

In January 2025, the "American Family Legacy Protection Act" (H.R. 1429) was introduced by Representative Smith (R-NE), proposing to permanently eliminate the federal estate tax. The bill currently has 46 co-sponsors, all Republicans, and has been referred to the House Ways and Means Committee.

Additionally, the "Main Street Tax Certainty Act" (S. 236), though primarily focused on other tax issues, contains provisions that would permanently extend the current elevated estate tax exemptions beyond their scheduled 2025 sunset date. This bill has attracted some moderate Democratic support and may represent a more achievable compromise position.

Senate Finance Committee Chair Johnson (R-WI) has announced plans to introduce comprehensive tax reform legislation in Q2 2025 that will include "significant estate tax relief for family businesses and farms," though specific details have not yet been released.

While these bills represent potential paths forward, we've seen this movie before. If history is any guide, it's unlikely any of them will gain traction and pass.

Short-Term vs. Long-Term Planning

While your family may currently fall below estate tax thresholds, several factors could change this status over time:

1. Appreciation of Assets: California real estate and investment portfolios have historically experienced significant appreciation, potentially pushing modest estates into taxable territory over time. Example we see all the time: client's parent's Orange County house purchased for $30,000, back in the day, now worth $5 million.

2. Inheritance: Receiving assets from parents or other relatives could push your estate value higher.

3. Business Growth: For families with small businesses, successful growth could dramatically increase estate value over time.

4. Life Insurance. The death benefit of life insurance policies will be included in the calculation of your estate value for estate tax purposes - even term policies.

Given these considerations, even families currently below exemption thresholds should implement flexible estate planning strategies that can adapt to changing circumstances and tax laws.

Focus on California-Specific Planning Issues

For California residents, several state-specific planning considerations remain essential regardless of federal estate tax changes:

1. California Probate Avoidance: California's probate process is notoriously expensive and time-consuming. A well-written, updated, and funded living trust remains essential for families of all wealth levels to avoid the costs and delays of California probate.

2. Prop 19 Planning: Recent changes to California property tax laws under Proposition 19 have significantly limited the ability to transfer property to children without reassessment. Strategic planning around these rules is crucial for California families whose wealth is concentrated in real estate.

3. Divorce Protection for Children. A living trust is not meant to protect your assets from divorce claims. However, your living trust can be written to include asset-protection trusts for your children, which will significantly protect your children's inheritance if they get divorced.

   California is a community property state. Although an inheritance is considered separate property, all too often, a child will co-mingle her inheritance and, without knowing, make it community property and expose it to a divorce claim.

   You can protect your children's inheritance by writing your living trust so it will distribute their inheritance in asset-protected trusts.
   
   

4. Blended Family Protections: For blended families, careful trust planning remains essential to balance the needs of current spouses and children from previous relationships.

Conclusion: Be Prepared for Any Outcome

For most families, the estate planning should be on strategies that:

1. Protect assets for your children's benefit
2. Minimize probate expenses and delays
3. Address California-specific property tax concerns
4. Provide for educational and other specific needs
5. Create structures that can adapt to changing tax laws

At Clark Allison LLP, we specialize in helping California families create comprehensive estate plans tailored to their unique circumstances. We understand the specific challenges facing families in California's high-cost environment, and we can help you navigate changing tax landscapes while focusing on what matters most—protecting your family's future.

Contact our office today to schedule a free family estate planning consultation and ensure your estate plan remains optimized for current conditions while positioned to adapt to potential changes under the new administration.