California GST Tax. California SB 378 would also impose a state generation-skipping transfer ("GST") tax at a 40 percent rate. The GST is imposed on transfers to related persons more than one generation younger to the donor, such as grandchildren, and gifts to unrelated persons who are more than 37.5 years younger than the donor. Again, the proposed legislation would provide for a separate $3.5 million exclusion for the GST tax, NOT indexed for inflation, but with a credit for any federal GST tax paid.

No Marital Deduction or Portability. California SB 378 as currently proposed allows for no separate state marital deduction, and there is no provision for the executor of a deceased spouse's estate to port or transfer the deceased spouse's unused $3,500,000 California exclusion to the surviving spouse. These two estate planning tools are the backbone of tax mitigation planning for taxable estates.  Without them, planning for married couples in California will become increasingly complex.


The good news is, even if this bill is passed by California's Legislature and signed by Governor Newsom later this year, it will have to be ratified by voters in the November 2020 statewide election. You do know which way to vote, right?