Tag: EP Wealth Advisors

California’s wealthiest residents stirred in December at the sound of a proposed one-time wealth tax. 

Backed by a major health care workers’ union, the Billionaire Tax Act would impose a 5% levy on the net worth of the 200-some Californians with $1 billion or more to their name. The act’s proponents say it could generate roughly $100 billion for health care and food assistance programs on the One, Big, Beautiful Bill Act’s chopping board.

Though the proposal – which drew early opposition from Gov. Gavin Newsom and needs to gather nearly 900,000 signatures by April to qualify for the November ballot – may never become law, some of the state’s ultra-wealthy residents are hunting for ways to get around it.

The tax would be a stark but temporary change from the structural advantages enjoyed by the state’s billionaires, who pay a smaller share of their income in taxes than ordinary Californians. It would hit taxpayers who were California residents on Jan. 1, 2026, with a total net worth of $1 billion or above as of Dec. 31, 2026.

A handful of tech billionaires fled the state ahead of or just after the residency deadline, including Alphabet co-founders Larry Page and Sergey Brin, and Meta Chief Executive Mark Zuckerberg.

Others who’ve stuck around are considering how best to foot the tax – or else, overcome its anti-avoidance measures to shift money and lessen their exposure. 

The wealth and tax advisers working with members of Los Angeles and California’s 1% are front-and-center to this planning. 

Gabriel Shahin, the principal and founder of Falcon Wealth Planning, which runs an office in Torrance, said his clients are searching for “fancy ways to legally avoid the tax.” One avenue involves moving the shares they hold in a company to an out-of-state irrevocable trust managed by a third-party trustee.

“Essentially, they still own it, per se, but because they’re not in control of it – they’re not the decision-makers – it’s not subject to California tax,” Shahin said. 

Shahin said his ultra-wealthy clients are often interested in funding trusts in Nevada and Delaware, which impose no state income tax and allow for long-term trusts, as a strategic shielding move. The proposed billionaire’s tax, however, was intentionally drafted to prevent common estate-planning maneuvers.

To determine a taxpayer’s worldwide net worth, the tax would consider the full value of assets they moved into almost any non-charitable trust in 2026 and three-fourths of the value of assets they shifted last year. Last-minute wealth transfers would be scrutinized, the draft act states. 

Real estate ownership is another of the proposed tax’s hot topics. The levy’s net worth calculation would exclude interests in properties held directly by a taxpayer, like a primary residence already subject to property tax, but not those they share with others. 

In theory, that means billionaires could avoid paying tax on a valuable painting by moving it to an out-of-state home they own — and keeping it there for at least 270 days in 2026. But even with this exclusion, the tax would apply broadly to the real estate holdings of the ultra-wealthy, who often split ownership in limited liability companies, Shahin said.

The Golden State is home to nearly a third of the country’s billionaire wealth. The shared net worth of the state’s three-comma-club has far outpaced average incomes, surging from $3.1 trillion in 2019 to $8.1 trillion as of late 2025, according to the Institute for Policy Studies.

While fortunes have grown, the tax burden on California’s high-net-worth residents has stayed minimal in the absence of estate and inheritance taxes. Among other avoidance measures, the state’s billionaires largely skirt income taxes by keeping paychecks low and making most of their money through capital gains and investment dividends. 

These tax savings got a boost from the OBBBA, which put in place the health care cuts the billionaire’s tax seeks to counteract. The federal legislation lets the wealthiest Americans off the hook for roughly $1 trillion in taxes over the next decade, according to the Institute on Taxation and Economic Policy. While billionaire wealth is growing and concentrated in the state, it doesn’t always translate to money in the bank.

“If you have a privately held business, you can’t just sell a couple shares of it to pay tax,” said Derek Holman, managing director and co-founder of Torrance-based EP Wealth Advisors, pointing to clients who own vineyards and farms. “There could be scenarios where people have a substantial amount of their money in illiquid assets, and they would be required to pay cash for something that’s not liquid.”

A good deal of the state’s billionaires – especially the founders of booming tech companies and artificial intelligence startups – are asset-rich but cash-poor, so to speak. Someone could be worth $2 billion, but hold $20 million in liquid cash with most of their wealth tied up in private stock or other illiquid assets.

Recognizing this, the proposed tax would allow liquidity-constrained billionaires to pay their share over multiple years with a 7.5% yearly charge on the deferred amount. The provision offers some flexibility but would send the tax rate above 5%.

One of Shahin’s clients, a tech executive with a net worth of around $3 billion, is considering leveraging out his private stock equity to cover the tax because he’d rather pay interest on a loan than reduce his stake in his company. 

Advising in the face of uncertainty about the billionaire’s tax’s future has been difficult, Shahin said, especially when clients weigh proactive steps as major as taking out a $100-million loan. 

“We said, ‘Get yourself ready, but there’s a strong possibility that it’s not going to move forward, or even if it did, under our current administration … they may try to override it,’” he said.

If passed, the tax could be subject to legal challenges owing to its retroactive “snapshot” date for California tax residency, some attorneys say.

Wherever an ultra-wealthy taxpayer’s assets are stored, the proposed tax would require an all-encompassing audit. While publicly traded securities would be assessed at their fair market value as of Dec. 31, 2026, privately owned business interests would be subject to a more complex process.

“Valuing something and determining what the tax would be on something that’s not going through a transaction is difficult,” Holman said. “Not everybody’s going to agree what the value of their assets is.”

A privately held asset would undergo a formulaic assessment combining its book value with an earnings metric or, in the case of hard-to-value assets, a mandatory appraisal. If the California Franchise Tax Board decides a valuation is understated, it could lay down significant penalties.

Ian Kang, tax practice leader at BDO USA’s downtown L.A. office, said one of his long-time clients has asked him to check his exposure to the billionaire’s tax. Families that own commercial properties or operating businesses should consider taking part in proactive valuation, Kang said, because the tax – with its wide-spanning net-worth assessment – could unexpectedly apply to them. Business-owners and entrepreneurs often don’t fully grasp their full wealth, he said.

“That first step [of valuation] has been lacking,” Kang said. “I’m just afraid of that creating some confusion and heavy impact in California for ultra-high-net-worth communities.”

In Holman’s office, some clients who are fairly sure they wouldn’t be subject to the levy are still worried about the possibility of ramped-up taxation aimed at filling structural gaps in the state budget, he said. 

“They’re concerned that if California is going to try to generate significant and ongoing revenue from this, it would have to apply to a broader aperture,” said Holman, who has heard from clients considering moving out of the state. 

Critics of the proposed tax, and wealth taxes in general, argue the strategy drives billionaires and multi-millionaires out to tax-friendlier pastures. 

To be sure, a handful of California’s ultra-wealthy residents left the state in the last year, snatching up mansions on Florida’s sunny shores. But the mass exodus some warned of hasn’t quite materialized, and economic data shows little evidence of capital flight in response to tax increases. 

A study published in the National Tax Journal analyzed New Jersey and California tax data and found near-zero migration elasticities among millionaires. And in a recent Forbes analysis, economist Teresa Ghilarducci at the New School for Social Research wrote that wealthy taxpayers are most likely to pack their bags if taxes are high, permanent and easy to avoid by relocating.

“A recurring tax can change lifetime planning and influence where people live,” Ghilarducci wrote. “A one-time tax likely does not.”

In the face of new or pending tax obligations, competing priorities make Kang’s high-net-worth clients stay in California, the tax adviser said – from community and family ties to climate. 

“We get a lot of inquiries from our clients and prospects about potential impact, or relocating and changing domicile of their businesses,” Kang said, “but only a very small portion of clients who inquire about the relocation opportunity are actually executing the plan.”