California voters will consider a proposed billionaire wealth tax in November 2026. If approved, Proposition 40 would impose a one-time tax on certain individuals and trusts associated with net worth of at least $1 billion.
Although the proposal would affect a relatively small number of taxpayers directly, the planning issues it raises are significant. The initiative presents complex questions involving business valuation, trust attribution, liquidity, ownership structures, residency, and the treatment of privately held and difficult-to-value assets.
For families who may be affected, the appropriate response is neither panic nor inaction.
It is preparation.
Why the Timing Matters
Proposition 40 is unusual in part because of its proposed timing. The initiative identifies January 1, 2026 as the tax obligation date and December 31, 2026 as the valuation date, even though California voters will not consider the measure until November 3, 2026.
As a result, taxpayers should not assume that transactions completed later in 2026 will necessarily eliminate potential liability. The initiative also contains detailed provisions addressing trusts, transfers, attribution, valuation, and potential judicial modification of the applicable dates.
At the same time, that does not mean families should begin making irreversible changes solely in response to a proposal that has not yet been enacted.
The better course is to understand the available options, identify the decisions that may require substantial lead time, and preserve flexibility while the legal landscape develops.
The Tax May Be More Significant Than the Headline Suggests
The proposal is often described as a five-percent tax on wealth exceeding $1 billion. Its mechanics are more consequential.
For individuals with net worth between $1 billion and $1.1 billion, the applicable rate would phase in from zero to five percent. Once net worth reaches $1.1 billion, the proposed tax would generally equal five percent of covered net worth—not merely five percent of the amount exceeding $1 billion.
For example, a taxpayer with covered net worth of $1.2 billion could face a tentative tax of approximately $60 million before accounting for exclusions, liabilities, apportionment, credits, trusts, deferral provisions, and other adjustments.
For many families, however, calculating net worth may prove far more difficult than applying the tax rate.
Valuation May Become the Central Planning Issue
Publicly traded securities generally have observable market prices. Privately held businesses, startup equity, intellectual property, carried interests, partnership interests, cryptocurrency, artwork, and other unique assets do not.
The initiative contains several valuation provisions, including rules addressing publicly traded assets, recent private-company financing transactions, certified appraisals, and potential appraiser penalties. Even with those provisions, significant questions remain concerning valuation methodologies, discounts, contingent rights, differing classes of equity, and the treatment of complex investment interests.
Families with substantial privately held or illiquid assets should begin identifying which holdings may require specialized valuation analysis.
That does not necessarily mean obtaining formal appraisals immediately. It means understanding where the difficult valuation issues are and how long a defensible process may take.
Existing Trusts Require Careful Review
The initiative expressly addresses grantor trusts. As drafted, assets held in an intentionally defective grantor trust may be attributed to the grantor for purposes of the proposed tax, even though those assets may have been removed from the grantor’s taxable estate.
Simply terminating grantor-trust status may not solve the problem. Certain nongrantor trusts may be subject to separate taxation, and the initiative contains additional rules addressing trust funding, transfers, beneficiaries, and attribution.
The relevant planning question is therefore not merely whether a trust can be modified. It is whether a proposed modification would produce a meaningful net benefit after considering wealth-tax, estate-tax, income-tax, transfer-tax, administrative, and family consequences.
In this environment, flexibility may become one of the most important features an estate plan can provide.
Liquidity and Governance Matter Too
A family may have a net worth exceeding $1 billion without having substantial cash available to pay a tax based on asset value.
Wealth may be concentrated in:
- Privately held businesses;
- Startup or pre-IPO equity;
- Investment partnerships;
- Intellectual property;
- Concentrated securities positions;
- Real estate development interests; or
- Other illiquid assets.
Families should therefore evaluate borrowing capacity, credit facilities, dividend policies, redemption rights, insurance, anticipated liquidity events, and succession plans.
They should also confirm that ownership records, trust summaries, capitalization tables, entity documents, organizational charts, and family balance sheets are accurate and current.
Good governance is not simply administrative. It creates optionality.
Preparing Without Overreacting
For some families, residency planning may ultimately become appropriate. For others, modifying trusts, restructuring ownership, addressing liquidity, or revisiting succession arrangements may make sense.
For many, no dramatic action will be warranted.
The critical point is that these decisions should not be made hurriedly or based solely on headlines. Relocating, restructuring a business, terminating a trust arrangement, or accelerating transfers may carry significant legal, tax, economic, and personal costs independent of Proposition 40.
You can almost always leave California later.
You cannot always reverse an unnecessary restructuring transaction, unwind an irrevocable trust modification, or restore planning flexibility surrendered too soon.
Our New White Paper
Preovolos Lewin, ALC has prepared a new white paper:
Preparing for California’s Proposed Billionaire Wealth Tax: Preparing Today for Tomorrow’s Planning Opportunities
The white paper examines:
- The proposed tax calculation and phase-in;
- The January 1 and December 31, 2026 timing provisions;
- Trust attribution and grantor-trust issues;
- Valuation requirements and unresolved appraisal questions;
- Liquidity planning;
- Governance and family-office readiness;
- Competing ballot measures;
- Residency and opportunity-cost considerations; and
- Ten practical steps families can begin taking now.
The objective is not to predict the election or recommend immediate restructuring. It is to help successful families organize their affairs, understand their options, and prepare to respond thoughtfully as the law develops.
This article is intended for general informational purposes only and should not be construed as legal, tax, accounting, investment, or financial advice. Readers should consult their professional advisors regarding their individual circumstances.