Most Americans will never owe federal estate tax — the exemption is $13.99 million per individual in 2026. But 17 states plus D.C. impose their own estate or inheritance taxes with much lower thresholds, and those state-level taxes catch far more families than most people realize. If you own a home in Massachusetts, Oregon, or Washington state, an estate worth just $1–2 million could trigger a state tax bill your heirs didn’t see coming.
Understanding how federal and state estate taxes interact — and what planning steps can reduce or eliminate them — is one of the most consequential parts of estate planning. This guide covers the current federal rules, every state with an estate or inheritance tax, and practical strategies for protecting what you pass on.
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 federal estate tax applies only to the portion of an estate that exceeds the exemption. With the exemption at $13.99 million for individuals — and $27.98 million for married couples who use portability — fewer than 1 in 1,000 estates owe any federal tax. For context, that threshold is roughly 30 times the median household net worth in the U.S.
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 our 2026 tax changes page for the latest. If the exemption does drop, the number of taxable estates would roughly triple, making planning far more urgent for households in the $7–14 million range.
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. The brackets are progressive — the first $10,000 above the exemption is taxed at 18%, the next $10,000 at 20%, and so on. In practice, the effective tax rate on a taxable estate of $1 million above the exemption works out to roughly 34–37%, well below the 40% top marginal rate.
It’s also worth noting that the estate tax and the gift tax share a unified lifetime exemption. Any taxable gifts you make during your lifetime reduce the exemption available at death dollar-for-dollar, so the two taxes function as a single system.
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. These state taxes are separate from and in addition to the federal estate tax, meaning a large estate in one of these states could face both bills:
| 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. In expensive real estate markets like the Boston metro area or Portland, it doesn’t take much — a paid-off house plus retirement accounts can easily push past $1 million.
A few important nuances:
- Connecticut is the only state whose exemption matches the federal level, effectively exempting the same estates.
- New York has a “cliff” — if the estate exceeds the exemption by more than 5%, the entire estate becomes taxable, not just the excess. An estate of $7.29 million (just 5% over the $6.94 million exemption) would owe tax on the full amount.
- Hawaii and Washington tie for the highest top rate at 20%, making them the most expensive states for very large estates.
- Oregon’s $1 million threshold has not been adjusted for inflation in years, pulling in more estates each year as home values rise.
If you live in a state with an estate tax and your net worth approaches the exemption, consult a local estate planning attorney. Moving assets into certain types of trusts — particularly irrevocable trusts — before they appreciate further can be one of the most effective strategies.
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, which means an estate there can be taxed twice — once when the estate is settled, and again when beneficiaries receive their share. However, Maryland does allow a credit that partially offsets the double hit.
Most inheritance taxes exempt spouses and often children, meaning they primarily affect inheritances left to siblings, nieces/nephews, friends, and unrelated individuals. The distinction matters for beneficiary designations — naming a spouse or child on retirement accounts, life insurance, and transfer-on-death accounts keeps those assets out of the inheritance tax net in most states.
Iowa has been phasing out its inheritance tax and it was fully repealed as of January 1, 2025, so it no longer applies to estates of decedents dying in 2025 or later.
Nebraska has the harshest rates for non-family heirs — up to 18% on inheritances to unrelated individuals, with only a $25,000 exemption. If you live in Nebraska and plan to leave assets to a non-relative, a living trust or other planning vehicle can help reduce the tax exposure.
States With No Estate Tax or Inheritance Tax
The remaining 32 states (plus D.C. excluded from above) impose neither an estate tax nor an inheritance tax. Notable no-tax states include Florida, Texas, Nevada, Wyoming, and Tennessee. This is one reason retirees frequently relocate to states with no income tax that also lack estate taxes — the combined savings across income, estate, and inheritance taxes can be substantial.
Estate Tax Planning Strategies
Estate tax planning isn’t just for the ultra-wealthy. If you live in a state with a $1–5 million exemption, or if the federal exemption drops in the coming years, these strategies become relevant for a much broader group of households. The key principle: remove assets from your taxable estate before they appreciate further. The earlier you start, the more effective these tools become.
1. Annual Gift Exclusion
Give up to $19,000 per recipient per year (2025 figure, indexed for inflation) without using any of your lifetime estate tax exemption. A married couple can give $38,000 to each person annually. Over a decade, a couple with three children and six grandchildren could move over $3.4 million out of their estate tax-free through annual gifts alone — without touching the lifetime exemption. This is one of the simplest and most accessible strategies and can be done without an attorney.
2. Spousal Transfer and Portability
Unlimited transfers between spouses are estate-tax-free under the unlimited marital deduction. When the first spouse dies, the surviving spouse can elect to use the deceased spouse’s unused exemption — a concept called portability. This effectively doubles the exemption to $27.98 million for the surviving spouse. However, portability must be elected by filing an estate tax return (Form 706) even if no tax is owed, and it does not apply to the generation-skipping transfer tax. Work with a CPA or estate attorney to ensure this election is properly filed.
3. Irrevocable Life Insurance Trust (ILIT)
Life insurance proceeds are included in your taxable estate if you own the policy. For someone with a $3 million life insurance policy in Oregon (exemption: $1 million), that policy alone could trigger state estate tax. An ILIT removes the policy from your estate while still providing liquidity for heirs to pay estate taxes, funeral costs, and other expenses without having to sell illiquid assets like real estate or a business.
4. Charitable Giving
Assets donated to qualified charities are deducted from the taxable estate. A charitable remainder trust (CRT) provides income to you or your spouse during your lifetime and transfers the remainder to charity at death — reducing the estate while generating a current income tax deduction. For high-net-worth households already making charitable donations, structuring gifts through a CRT or donor-advised fund is often more tax-efficient than outright bequests.
5. Grantor Retained Annuity Trust (GRAT)
Transfer appreciating assets — such as stock, a business interest, or real estate investments — into a trust while retaining an annuity payment for a fixed term. If the assets grow faster than the IRS Section 7520 interest rate (which is set monthly), the excess appreciation passes to your heirs completely free of gift and estate tax. GRATs are particularly effective in low-interest-rate environments and with volatile, high-growth assets.
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 with a 20% top rate). However, states like New York have aggressive “domicile audits” to ensure the move is genuine — simply buying a Florida condo isn’t enough. You’ll typically need to change your driver’s license, voter registration, doctors, and spend the majority of your time in the new state.
7. Family Limited Partnership (FLP) or LLC
Transferring assets into a family limited partnership or LLC allows you to gift minority interests to heirs at a discount to fair market value. Because minority interests lack control and marketability, they can be valued 20–35% below their proportionate share of the underlying assets. This is an advanced strategy that requires proper structuring and an independent appraisal, but it can be highly effective for families with real estate, a business, or a concentrated investment portfolio.
Gift Tax Rules
The gift tax is connected to the estate tax — they share the same unified lifetime exemption:
| 2026 | |
|---|---|
| Annual exclusion per recipient | $19,000 |
| Lifetime gift/estate exemption | $13.99 million |
| Top gift tax rate | 40% |
Gifts exceeding the annual exclusion don’t necessarily trigger tax — they simply reduce your lifetime exemption. You report them on IRS Form 709, but you only owe gift tax if you’ve exhausted the entire $13.99 million exemption. In practice, the gift tax functions as a guardrail to prevent people from simply giving away their estate before death to avoid estate tax.
Two important exceptions that don’t count against either the annual exclusion or the lifetime exemption:
- Tuition payments made directly to an educational institution (not to the student)
- Medical expenses paid directly to the healthcare provider
These “qualified transfers” are unlimited and are a powerful way to support family members without any gift or estate tax consequences.
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 that accumulated during the decedent’s lifetime.
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.
The step-up applies to stocks, bonds, mutual funds, ETFs, real estate, and most other capital assets. It does not apply to assets in traditional IRAs, 401(k)s, or other tax-deferred retirement accounts — those are taxed as ordinary income when withdrawn by the beneficiary regardless.
This is why many advisors recommend holding appreciated assets until death rather than selling or gifting them during your lifetime. Gifting appreciated assets transfers your original cost basis to the recipient (a “carryover basis”), which means they’d owe capital gains tax on the full appreciation when they eventually sell. In contrast, bequeathing the same asset at death wipes out the gain entirely.
For families with significant unrealized gains, the step-up in basis can save more in taxes than the estate tax itself costs — making it a central consideration in deciding whether to gift assets during life or hold them.
How Estate Tax Interacts With Other Taxes
Estate and inheritance taxes don’t exist in a vacuum. Here’s how they connect with other parts of the tax code:
- Income tax on inherited retirement accounts: Assets in a 401(k) or traditional IRA are subject to income tax when withdrawn by the beneficiary. Non-spouse beneficiaries must generally empty the account within 10 years under the SECURE Act, which can push heirs into higher tax brackets.
- Capital gains on inherited real estate: Thanks to the step-up in basis, heirs can often sell inherited property with little or no capital gains tax. But if they hold it and it appreciates further, the new gains are taxable. Review capital gains tax on real estate for details.
- State income tax: Some states tax inherited retirement account distributions at their full state income tax rate. Moving to a no-income-tax state before taking distributions can save a significant amount.
- Generation-skipping transfer tax (GSTT): Transfers to grandchildren or later generations (skipping a generation) face a separate 40% tax on top of the estate tax. The GSTT has its own exemption ($13.99 million in 2026), but unlike the estate tax exemption, it is not portable between spouses.
When to Start Estate Tax Planning
The right time to think about estate taxes depends on your net worth and where you live:
- Under $1 million: Federal and state estate taxes are unlikely to apply in any state. Focus on basic estate planning documents — a will, power of attorney, and beneficiary designations.
- $1–5 million: If you live in Oregon, Massachusetts, Rhode Island, Washington, or D.C., you may be approaching or past the state exemption. Consult an estate planning attorney about trusts and gifting strategies.
- $5–14 million: You’re likely above many state exemptions and could be affected if the federal exemption drops. This is the range where proactive planning — GRATs, ILITs, family LLCs — can save substantial amounts.
- Over $14 million: Federal estate tax planning is essential. Work with a team that includes an estate attorney, a CPA, and potentially a financial advisor experienced in tax-efficient investing.
Regardless of your net worth, having a basic estate planning checklist ensures your assets go where you intend and your family avoids probate delays.
Related: Top 1% Net Worth | Net Worth Percentile Calculator | Capital Gains Tax Rates | 2026 Tax Changes | How to Write a Will