USA – CALIFORNIA Law and Practice Contributed by: Jennifer J. McCall, Matthew Perotti and Ashley E. Huh, Pillsbury Winthrop Shaw Pittman LLP
5. Tax Treatment of Lifetime Transfers and Testamentary Dispositions 5.1 Lifetime Transfers The gift tax applies to transfers made during a donor’s lifetime when the transfer constitutes a completed gift. However, most donors do not incur gift tax because of the available lifetime exclusion, which is USD15 million in 2026. In addition, outright lifetime gifts to a US citizen spouse qualify for the unlimited marital deduction and are not subject to gift tax. Gifts to a non‑US citizen spouse are not eligible for the unlimited marital deduction, but the donor may use a USD194,000 annual exclusion in 2026 before gift tax applies. US citizens and domiciliaries may make gifts in 2026 – other than gifts to a US citizen spouse or a char- ity – of up to USD19,000 per donee, per year with- out any gift tax consequences. To qualify, these gifts must be completed gifts, either made outright to an individual or to a trust that includes properly admin- istered “Crummey” withdrawal powers. This annual exclusion allows such gifts to fall entirely outside the gift tax system. If an individual makes a gift to any donee (other than a US citizen spouse or a charity) that exceeds USD19,000 in 2026, the donor must file Form 709 to report the gift to the IRS. Form 709 is due on 15 April of the year following the gift, unless the donor requests an automatic six‑month extension. Any esti- mated gift tax must still be paid by the original due date. Only one US state – Connecticut – imposes a state‑level gift tax. For non‑residents, gifts of US situs real property and tangible personal property are sub- ject to federal gift tax, with no exemption available other than the USD19,000 annual exclusion. In the United States, gifts or bequests to charities may qualify for a deduction from gift or estate tax, as appli- cable. An income tax deduction may also be avail- able. The Internal Revenue Code recognises differ- ent categories of charities, but the two primary types are public charities and private foundations. Gifts or bequests to public charities generally receive more
receives the decedent’s share of the community prop- erty, as well as a portion of the decedent’s separate property, with the remainder of the separate property often passing to the decedent’s children. In com- mon‑law states, many jurisdictions restrict a dece- dent’s ability to fully disinherit a spouse by imposing “spousal election” statutes, which entitle the surviving spouse to a minimum share of the estate (commonly one‑third or one‑half). 4.2 Prenuptial and Postnuptial Agreements The classification of property acquired during mar- riage is governed by state law. Nine jurisdictions – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin – follow a community property regime. In these states, prop- erty acquired by either spouse during the marriage is generally treated as community property, owned equally by both spouses, except for assets received by gift or inheritance. All other states are “common law” states. In general, common law states treat property acquired during marriage as belonging to the spouse who acquires it, unless the spouses take title jointly or otherwise dem- onstrate joint ownership. Even in common law states, however, courts in divorce proceedings will typically distribute marital assets equitably if the parties cannot reach an agreement. Every state also allows spouses to modify these default rules by contract. Agreements entered before marriage are commonly referred to as pre-marital agreements, while those entered after marriage are known as post-marital agreements. Although require- ments differ by state, enforceability usually depends on full and fair disclosure of assets and each party having the opportunity to consult independent coun- sel. A marital agreement can address nearly any issue related to property ownership during the marriage, including – but not limited to – the management of property and the allocation of assets upon divorce or death. Such agreements may also modify or waive certain statutory rights, including spousal support.
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