California has placed a one-time wealth tax before its voters. If you have a net worth approaching or exceeding $1 billion and any connection to California, the proposed 2026 Billionaire Tax Act deserves your attention now—not after the November 2026 vote. The measure is built around a single valuation date. The most effective, defensible planning happens before that date arrives.

This insight explains what the tax does, who it reaches, and the legitimate strategies sophisticated families are evaluating with their advisors. It is educational, not a recommendation; every approach below depends entirely on your specific situation and implementation with substance and professional guidance.

What the 2026 Billionaire Tax Act proposes

At its core, the measure would impose a one-time 5% tax on net worth of $1 billion or more. A few features make this tax proposal unusual:

  • It is a wealth tax, not an income tax. It applies to your net worth, not your annual earnings—reaching stocks, business interests, and most other worldwide assets.
  • Your wealth will be measured on a single day. So is your residency. But the days are a year apart. Your status as a California resident was fixed as of January 1, 2026 (the “tax obligation date”). Your taxable net worth is determined as of December 31, 2026 (the “valuation date”). Simply leaving California in 2026 does not avoid the tax. The planning window is the year itself.
  • Your entire net worth is in scope—there is no exemption amount. Unlike the federal estate tax, which exempts the first $15 million for individuals and taxes only the excess, this measure has no exemption. The $1 billion figure is an on-off switch for whether you owe the tax. Once you cross the threshold, the 5% is calculated on your whole net worth, not just the portion above $1 billion.
  • A narrow rate phase-in sits just above the threshold. Between $1.0 billion and $1.1 billion of net worth, the 5% rate is reduced on a sliding scale. Families right at the line owe less. But this softening disappears at $1.1 billion—above that point, the full 5% applies to every dollar of net worth.
  • Married couples are treated as one taxpayer. In addition, a nonresident spouse’s worldwide assets can be drawn into the calculation.

The feature most families underestimate: The whole base is taxed

Most US taxes on wealth and income are progressive: An exemption or a graduated tax bracket means everyone’s first dollars are taxed at the same rates, and higher rates apply only to amounts above each threshold. The 2026 Billionaire Tax Act does not work that way.

The practical consequences are stark, and they concentrate around the $1.1 billion mark:

  • At roughly $1.0 billion, the rate phase-in has reduced the effective rate to near zero—a family right at the threshold owes little.
  • At $1.05 billion, the effective rate is roughly 2.5%, applied to the full $1.05 billion (which means approximately $26 million in tax owed).
  • At $1.1 billion and above, the full 5% applies to the entire net worth—$55 million tax owed at $1.1 billion, and rising 5 cents on every additional dollar thereafter.

In other words, crossing from just under $1 billion to $1.05 billion to $1.1 billion can swing a family from no liability to a sharply reduced rate to the full 5% on every dollar they own. For families whose net worth sits anywhere near this band, precise valuation and careful planning around the threshold can move the bill by tens of millions of dollars. This is one of the clearest reasons to model your position early, with advisors who understand exactly how the threshold, the phase-in, and the valuation rules interact.

The strategies that won’t work—and why

A recurring theme runs through every effective strategy: economic substance. The measure is drafted with anti-avoidance authority, substance-over-form doctrine, and a general anti-abuse rule. Last-minute paper transfers, artificial valuation reductions, and assets shuffled solely to game the valuation date are precisely what the proposal targets—and several common “obvious” moves are already foreclosed by its drafting, including last-minute gifting and traditional valuation discounts.

Basic planning strategies worth evaluating

Each of the following items reflects a deliberate feature of how wealth is defined and valued.

1. Real estate form of ownership matters enormously

The measure excludes real property that is held directly or through a revocable living trust from net worth. This is one of the most significant features of the proposal, but it turns on how the property is held, not simply that it is real estate:

  • Property held in your own name, or in a revocable trust, falls within the exclusion.
  • Property held inside an LLC, partnership, or REIT is treated as a business-entity interest and is not excluded.
  • Property held in certain irrevocable trusts can be pulled back into your taxable base.

For families with substantial real estate, reviewing title and entity structure well before the valuation date is among the highest-value exercises available. Notably, this can run opposite to conventional estate-planning instincts, which often favor moving appreciating real estate into irrevocable structures—a tension that requires coordinated analysis.

2. Genuinely out-of-state tangible property

Tangible personal property—fine art, aircraft, vessels, collections—that is genuinely located outside California for the required portion of 2026 can fall outside the tax. The emphasis is on genuine situs: The statute denies the benefit if property is relocated temporarily for the purpose of avoiding tax. Assets that truly reside elsewhere, in a residence or facility outside the state year-round, present the defensible version of this position.

3. Permanent life insurance and the value of in-force policies

A wealth tax values a life insurance policy at its living, in-force value as of the valuation date—not the eventual death benefit. For permanent (whole or universal) policies, that value is typically a fraction of the coverage amount. This is a valuation feature, not an exemption: The policy is included, but often at a value well below the wealth it ultimately transfers. The ownership structure—individual ownership versus various trust arrangements—materially changes the result and must be modeled carefully. The most tax-efficient configuration can differ from a family’s existing insurance trust setup.

4. Thoughtful trust architecture

How trusts are classified—and when they were funded—drives very different outcomes. The measure distinguishes between trusts whose assets are attributed back to you and trusts that are treated as separate taxpayers, and it treats long-established trusts differently from those funded immediately before the measure. Reviewing the classification and history of every family trust is essential; the right architecture is highly fact-specific and should never be assumed from labels alone.

5. Qualified retirement assets

Qualified pensions and IRAs receive favorable treatment under the proposal, and other retirement vehicles receive defined (sometimes capped) treatment. While contribution limits cap the absolute dollars involved, maximizing genuinely qualified structures is a costless component of a broader plan.

6. Apportionment for wealth without deep California roots

The measure generally apportions the full tax to California, but it provides a mechanism to petition for a reduced apportionment where wealth genuinely did not accumulate in, and was not substantially sustained by, California. For families with recent or limited California connections, this is an important—and legitimate—avenue that requires a careful evidentiary showing.

7. Liquidity planning and the deferral mechanism

For families whose wealth is concentrated in illiquid holdings, the proposal contains an optional deferral mechanism that can spread or postpone the economic impact. Understanding whether you qualify, and how the mechanism interacts with your balance sheet, is the core to any planning strategy.

8. Sequencing a liquidity event before the valuation date

Families who expect to sell appreciated assets—whether to fund the tax itself or for unrelated reasons—should weigh the timing of those sales against the December 31, 2026, valuation date. Completing a sale within 2026 converts an illiquid holding into funds available for the eventual payment and triggers the associated federal and California income-tax cost within the 2026 tax year, rather than carrying a fully valued asset across the valuation date and selling into a tax bill afterward. A genuinely incurred income-tax obligation—and any payment made toward it—should be modeled carefully with your advisors well before year-end.

9. The five-year payment election

The statute gives every taxpayer above the threshold a choice: pay the full 5% in one lump sum in 2027, or elect to spread payments over five years at an additional cost. This is a feature of the measure itself, not a Cerity Partners strategy—every affected family will face this decision regardless of how sophisticated their planning is.

Sophisticated planning is available for Cerity Partners clients

The strategies above are the foundation, and any well-advised family should be evaluating them. More sophisticated planning with greater depth will be needed for families whose wealth exceeds $1.1 billion. The proposed legislation is carefully drafted, but there are several strategic avenues to legitimately mitigate the tax. Cerity Partners clients can benefit from this type of planning with our experienced tax professionals.

Why timing is the single most important factor

Many of the applicable strategies, such as title changes, trust reviews, insurance restructuring, situs planning, and apportionment documentation, take time to implement with proper substance. Families who wait until the measure passes—or until late 2026—will have forfeited many of their most powerful and most defensible options. Cerity Partners advises ultra-high-net-worth individuals and families on sophisticated wealth and tax planning tailored to their specific circumstances. Reach out to your advisor or request an introduction today.

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