Estate Planning for California Business Owners in 2026

For years, estate planning conversations with business owners started with the federal estate tax. The exemption was scheduled to drop, the projections were alarming, and planning often meant racing a deadline. In the summer of 2025 that conversation has changed shape entirely.

The federal estate tax exemption is now a permanent $15 million per person, or $30 million for a married couple, assuming the appropriate tax elections are filed, under the One Big Beautiful Bill Act signed in July 2025, indexed for inflation starting in 2027. California continues to have no state estate tax of its own. For the large majority of California business owners, the federal estate tax has simply ceased to be a realistic concern.

Which raises a fair question: does a business owner still need an estate plan? More than almost anyone, and here is why.

Photo by Maranda Vandergriff on Unsplash

The problem the exemption did nothing about

Estate tax was never the thing that actually kills small businesses when an owner dies. Probate is. A business interest titled in your own name, whether through LLC membership interests, corporate shares, or partnership interests, goes through probate like any other asset. That can mean a year or more during which the question of who controls the company sits in front of a judge.

Payroll still runs during that year. Vendors still invoice. Clients still call. A business can lose enormous value while ownership is frozen, and in the worst cases, whether the company survives at all gets decided by how fast a court moves.

The plan that keeps the business running

For most owners the working structure has three layers.

Layer one: title the business interest in your living trust. Once your LLC interest or shares are held by your revocable trust, your death moves control instantly to your successor trustee under your written instructions, without any court involvement. Your operating agreement or corporate bylaws need to permit trust ownership, and getting the paperwork consistent is part of the job.

Layer two: put succession in the entity documents. A buy-sell agreement, or succession provisions in the operating agreement, answers the questions your trust cannot: who may own the company, at what price a partner or family member buys a deceased owner's share, and how that purchase gets funded, often with life insurance. If you have partners, this document protects both families.

Layer three: plan for incapacity, which is the scenario owners skip. Death gets the attention, and a stroke or a serious accident is statistically the more likely interruption during your working years. Your trust and a durable power of attorney should name who signs checks, approves payroll, and makes decisions the day you cannot. Without them, your family may need a court conservatorship just to keep the lights on.

One caution for S corporation owners

Trust ownership of S corporation shares carries special federal tax rules. A revocable trust generally qualifies as a shareholder during your lifetime and for a limited period after death, after which the trust may need to qualify under specific elections to preserve the S election. This is exactly the sort of trap that separates a business owner's plan from a template, and it is a point we coordinate with your CPA.

What tax planning looks like now

For owners whose estates genuinely approach the exemption, the advanced toolbox still exists: gifting programs, entity structures for transferring interests at favorable values, irrevocable trusts, and charitable strategies. The permanence of the exemption means these moves can now be made deliberately instead of against a sunset deadline.

For everyone else, tax planning in 2026 mostly means income tax and property tax. Heirs still receive a step-up in cost basis at death under current federal law, which affects the choice between gifting assets now and holding them. And California's Proposition 19 limits property tax transfers between parents and children. We covered the property tax side in The Impacts of Prop 19.

Frequently asked questions

Does my business go through probate in California?

A business interest titled in your personal name goes through probate like any other asset. Titling the interest in a revocable living trust lets control pass immediately to your successor trustee without a court case.

Do California business owners still owe estate tax in 2026?

Very few do. The federal exemption is a permanent $15 million per person as of 2026, and California imposes no state estate tax. Owners whose estates approach the exemption still benefit from advanced planning.

Can my living trust own my LLC or corporation?

Generally yes, provided your operating agreement or bylaws permit it. Professional practices and S-corporation shares carry special rules for trust ownership, so that transfer should be coordinated with an attorney and possibly your CPA.

What is a buy-sell agreement?

A buy-sell agreement is a contract among business owners that sets who can buy a deceased or departing owner's share, at what price, and how the purchase is funded. It works alongside your trust rather than replacing it.

What happens to my business if I become incapacitated?

Without planning, your family may need a court conservatorship to run the company. A trust and durable power of attorney name the person authorized to manage the business immediately, which keeps payroll, banking, and decisions moving.

If you own a business, your estate plan is also your company's continuity plan. Laurel Trust Law LLP works with business owners on trust, succession, and entity planning from our Mission Viejo and Studio City offices. Book a consultation and we will look at your structure together.

This is general information, and not legal advice for any specific business.