Most Americans will never owe federal estate tax — the exemption is $13.99 million per individual. But 17 states plus D.C. have their own estate or inheritance taxes with much lower thresholds, potentially affecting middle-class families.
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Federal Estate Tax
| 2026 | |
|---|---|
| Exemption (individual) | $13.99 million |
| Exemption (married couple) | $27.98 million |
| Top tax rate | 40% |
| Estates that owe tax | ~0.1% of all deaths |
The Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption beginning in 2018. This higher exemption is currently set to expire after 2025, which could reduce the exemption to approximately $7 million (adjusted for inflation). Congress may extend it — check for updates.
Federal Estate Tax Brackets
| Taxable Estate Amount | Tax Rate |
|---|---|
| $0 – $10,000 | 18% |
| $10,001 – $20,000 | 20% |
| $20,001 – $40,000 | 22% |
| $40,001 – $60,000 | 24% |
| $60,001 – $80,000 | 26% |
| $80,001 – $100,000 | 28% |
| $100,001 – $150,000 | 30% |
| $150,001 – $250,000 | 32% |
| $250,001 – $500,000 | 34% |
| $500,001 – $750,000 | 37% |
| $750,001 – $1,000,000 | 39% |
| Over $1,000,000 | 40% |
These rates apply only to the taxable amount above the exemption.
States With an Estate Tax
Twelve states and Washington D.C. impose their own estate tax, often with much lower exemptions than the federal level:
| State | Exemption | Top Rate |
|---|---|---|
| Connecticut | $13.99 million | 12% |
| Hawaii | $5.49 million | 20% |
| Illinois | $4 million | 16% |
| Maine | $6.8 million | 12% |
| Maryland | $5 million | 16% |
| Massachusetts | $2 million | 16% |
| Minnesota | $3 million | 16% |
| New York | $6.94 million | 16% |
| Oregon | $1 million | 16% |
| Rhode Island | $1.77 million | 16% |
| Vermont | $5 million | 16% |
| Washington | $2.193 million | 20% |
| Washington D.C. | $4.71 million | 16% |
Oregon and Massachusetts have the lowest exemptions, meaning estates worth over $1-2 million can owe state estate tax despite being well below the federal threshold.
States With an Inheritance Tax
Six states impose an inheritance tax, paid by the person receiving the inheritance:
| State | Tax Rates | Exemptions |
|---|---|---|
| Iowa | 2% – 6% | Phasing out by 2025 |
| Kentucky | 4% – 16% | Class A heirs (spouse, children, parents) exempt |
| Maryland | 10% | Spouse, children, parents exempt |
| Nebraska | 1% – 18% | Spouse exempt; $100,000 exemption for close relatives |
| New Jersey | 11% – 16% | Spouse, children, parents exempt |
| Pennsylvania | 4.5% – 15% | Spouse exempt; 4.5% for children |
Maryland is the only state with both an estate tax AND an inheritance tax.
Most inheritance taxes exempt spouses and often children, meaning they primarily affect inheritances to siblings, nieces/nephews, and unrelated individuals.
Estate Tax Planning Strategies
1. Annual Gift Exclusion
Give up to $18,000 per recipient per year without using any estate tax exemption. A married couple can give $36,000 to each person annually.
2. Spousal Transfer
Unlimited transfers between spouses are estate-tax-free. Plus, the surviving spouse can use the deceased spouse’s unused exemption (portability), doubling the exemption to $27.98 million.
3. Irrevocable Life Insurance Trust (ILIT)
Life insurance proceeds are included in your estate if you own the policy. An ILIT removes the policy from your estate while providing liquidity for heirs.
4. Charitable Giving
Assets donated to qualified charities are deducted from the taxable estate. Charitable remainder trusts provide income during your lifetime and transfer the remainder to charity.
5. Grantor Retained Annuity Trust (GRAT)
Transfer appreciating assets to a trust while retaining an annuity payment. If the assets grow faster than the IRS interest rate, the excess passes to heirs tax-free.
6. Move to a No-Estate-Tax State
Relocating to a state without an estate tax can save hundreds of thousands in taxes. This is particularly relevant if you live in Oregon (exemption just $1 million), Massachusetts ($2 million), or Washington ($2.193 million).
Gift Tax Rules
The gift tax is connected to the estate tax — they share the same lifetime exemption:
| 2026 | |
|---|---|
| Annual exclusion per recipient | $18,000 |
| Lifetime gift/estate exemption | $13.99 million |
| Top gift tax rate | 40% |
Gifts exceeding the annual exclusion don’t necessarily trigger tax — they reduce your lifetime exemption. You only owe gift tax if you’ve used your entire $13.99 million exemption.
Step-Up in Basis at Death
One of the most significant tax benefits in estate planning: inherited assets receive a stepped-up basis to fair market value at the date of death. This eliminates all unrealized capital gains.
Example: You bought stock for $50,000 that’s worth $500,000 when you die. Your heirs receive a basis of $500,000. If they sell immediately, they owe $0 in capital gains tax despite $450,000 in appreciation.
This is why many advisors recommend holding appreciated assets until death rather than selling or gifting them during your lifetime.
Related: Top 1% Net Worth | Net Worth Percentile Calculator | Capital Gains Tax Rates
