California Estate Planning in 2026: Prop 19, Probate, and the Revocable Trust

The Prop 19 problem

Before Prop 19, California property tax was anchored to Prop 13 (1978), which capped annual property tax increases at 2% as long as ownership did not change. When a parent passed property to a child, the property tax basis transferred with it under the parent-child exclusion. The child kept the parent's low tax basis.

Prop 19, passed in 2020 and effective in 2021, removed that exclusion for most inherited real estate. Per the Proposition 19 official guide from the California State Board of Equalization, a child who inherits a parent's primary residence must make the property their own primary residence within one year to keep any part of the parent's tax basis, and even then the exclusion is capped at $1,044,586 above the parent's assessed value in 2026. Inherited rental properties, vacation homes, and any property the child does not use as a primary residence get fully reassessed regardless.

For a couple in Los Angeles with a home purchased in 1995 at $300,000 (current property tax basis maybe $400,000) and current market value $2 million, the math is real. If the child inherits and does not move in, the new property tax basis is $2 million. The annual property tax climbs from roughly $4,000 to roughly $20,000.

A worked example: a couple in Palo Alto purchased a $400,000 home in 1990. Annual property tax basis after 30 years of Prop 13 increases sits around $620,000, with annual property tax around $7,400. At the surviving spouse's death in 2026, the home is appraised at $3.8 million. Their adult daughter, who lives in Brooklyn with her own family, inherits the home. Under Prop 19, because the daughter does not make the home her primary residence within a year, the home gets reassessed to $3.8 million. The annual property tax climbs from $7,400 to roughly $45,000. The daughter then faces a choice: keep the home and pay the higher tax, sell at fair market value (with no capital gains tax owed because of the step-up in basis at death), or move into the home and claim the primary residence exclusion. Most adult children sell.

A second worked example, this time with a child who moves in: same couple, same $3.8 million home. Their adult son moves into the home within one year of the surviving spouse's death and claims the primary residence exclusion. Because the home's fair market value ($3.8M) exceeds the parent's assessed value ($620K) by more than $1,044,586, a partial reassessment happens. The new taxable value is roughly $1,664,586 (parent's $620K + $1,044,586 cap). Annual property tax jumps from $7,400 to roughly $20,000. Better than the full reassessment to $3.8M but still a real increase. The child then needs to continually occupy the home as a primary residence for the exclusion to hold; if the child stops using it as a primary residence, the property gets reassessed at that point.

Prop 19 is not avoidable through normal estate planning. The reassessment happens whether the property passes through probate or through a trust. What California estate planning can do is help the family decide whether to keep the property (and pay the higher tax) or sell at the parent's death (where the step-up in basis under federal law avoids the capital gains tax).

An open question at publish time: a third repeal effort ("Fix Prop 19 to Save Our Children's Future") is circulating petitions with a May 2026 deadline. If proponents gather enough valid signatures, the initiative could appear on the November 2026 ballot. California estate planning conversations in 2026 should assume the current Prop 19 rules apply unless and until the repeal effort succeeds.

The California probate problem

Even before Prop 19, California probate was a major estate planning consideration because of the statutory fee schedule. For an estate worth $1 million, the attorney gets $23,000 and the personal representative gets another $23,000, for $46,000 total before any extraordinary fees. For an estate worth $5 million, that climbs to $122,000.

The revocable living trust avoids probate. Assets titled in the trust pass to beneficiaries under the trust's terms without probate court involvement. The trust still requires administration after the grantor's death, but the cost is typically a fraction of probate fees and the timeline is months instead of a year or more.

For California couples with a home, a brokerage account, and a retirement plan, the math favors the revocable trust. The cost of setting up the trust (a few thousand dollars one-time) is less than 10% of what the family would pay in probate fees on an estate of $1 million or more. The trust is also faster to administer and keeps the estate private (probate is a public process; trust administration is not).

What California estate planning typically includes

A standard California estate plan for a couple includes:

1. Revocable living trust holding the home, brokerage accounts, and any other major assets. Both spouses are usually co-trustees during life.

2. Pour-over wills for each spouse. Catches any assets not yet retitled into the trust at death.

3. Healthcare directives for each spouse. California uses the statutory Health Care Directive form under CA Probate Code Section 4701 that combines Medical Power of Attorney (Part 1), Living Will and Treatment Preferences (Part 2), and HIPAA Authorization (Part 3).

4. Durable powers of attorney for financial decision-making if a spouse becomes incapacitated.

5. Guardian designations for any minor children.

The home gets retitled from the couple's names into the trust's name. Brokerage accounts get retitled. Retirement accounts get beneficiary designations updated to flow through the trust or directly to the surviving spouse. Once the trust is funded, the foundation is in place.

Funding the trust matters as much as creating it

A common California estate planning failure is the unfunded trust: the documents are drafted, signed, and filed, but the assets never get retitled into the trust's name. At death, those assets still go through probate, defeating the entire purpose of the plan.

Funding the trust means:

• The deed for the home gets re-recorded to title the property in the name of the trust (e.g., "John and Jane Doe, as trustees of the Doe Family Revocable Living Trust").
• Brokerage and bank accounts get retitled in the name of the trust. The brokerage typically handles the paperwork once given the trust documents.
• Retirement accounts (401(k), IRA) cannot be retitled into the trust during life without triggering tax consequences. Instead, the beneficiary designations are updated to flow through the trust at death.
• Life insurance policies have beneficiary designations updated similarly.
• Vehicles can be retitled into the trust through the DMV.

A good California estate planning service walks both spouses through funding step by step. Neptune handles the deed work for the primary residence as part of the standard plan setup.

Community property and the California marriage

California is a community property state. Assets and income acquired during the marriage are community property; premarital assets are separate property; and appreciation on separate property during the marriage may become community based on factors like commingling or active management. This baseline shapes California estate planning in two practical ways.

First, at the first spouse's death, community property gets a full step-up in basis on both halves (unlike common law property states, which only step up the deceased spouse's half). For California couples with a long-held family home in a high-appreciation market, the community property double step-up is worth tens or hundreds of thousands of dollars in avoided capital gains tax for the surviving spouse.

Second, the revocable trust needs to be drafted with community property principles in mind. The trust typically holds community property and separate property with different characterization, so at the first spouse's death, the community property portion and the separate property portion are treated differently for the step-up and for the surviving spouse's rights.

California-specific gifting and the federal exemption

California couples below the federal exemption ($30 million combined) do not need to do transfer tax planning. For couples approaching the threshold (typically after a liquidity event, business sale, or major asset appreciation), lifetime gifting using the annual exclusion ($19,000 per recipient per donor in 2026) or the lifetime exemption is the standard tool.

For couples with concentrated pre-IPO equity in a California tech company, the SLAT structure conversation typically starts 12 to 24 months before the expected liquidity event. Neptune's standard plan covers the foundation; the SLAT structuring routes to a tax-focused specialist. Bay Area couples working at SpaceX, OpenAI, Anthropic, or other pre-liquidity tech companies increasingly bring the SLAT conversation into the California estate planning discussion.

How Neptune fits

Neptune's $2,500 estate plan covers the standard California set: revocable trust, pour-over wills, healthcare directives, durable powers of attorney, and guardian designations. AI-led intake plus state-licensed California estate planning attorney drafting in two to four weeks. The deed work to retitle the primary residence into the trust is included.

For California couples with operating businesses, multi-state real estate, or estates approaching the $30M federal exemption, Neptune routes to a tax-focused trusts and estates specialist. The standard California estate planning package covers the foundation; the specialist handles the irrevocable layer.

Related guides

• Revocable Trust
• Step-Up in Basis
• State Cost Guide