Estate Tax vs Inheritance Tax: Which States Tax You? (2026)
Most Americans will never owe federal estate tax. The 2026 federal exemption is $13.99 million per person, meaning only the wealthiest estates are affected. But state-level taxes are a different story. Twelve states and the District of Columbia impose their own estate tax with much lower exemptions, and six states charge an inheritance tax on the people who receive assets. This guide explains how both taxes work, which states impose them, the specific exemption amounts, and strategies for minimizing what your family owes.
Estate Tax vs. Inheritance Tax: Key Differences
These two taxes are often confused, but they work in fundamentally different ways:
Estate Tax
- Paid by the estate before distribution
- Based on total estate value
- Charged by the federal government
- Also charged by 12 states + DC
- Federal exemption: $13.99M (2026)
- Federal rate: 18% to 40%
Inheritance Tax
- Paid by the person who inherits
- Based on what each heir receives
- No federal inheritance tax exists
- Charged by 6 states only
- Rates depend on relationship to deceased
- Spouses always exempt
It is possible to owe both taxes. If someone dies in Maryland (which has both) and leaves assets to a non-exempt beneficiary, the estate pays Maryland estate tax, and then the beneficiary pays Maryland inheritance tax on what they receive.
Federal Estate Tax (2026)
The federal estate tax applies to the total value of a deceased person's assets minus debts, funeral expenses, charitable donations, and transfers to a surviving spouse. Here are the key numbers for 2026:
- Exemption: $13.99 million per individual
- Married couple (with portability): $27.98 million
- Tax rates: Graduated from 18% to 40% on the amount exceeding the exemption
- Top rate applies to: Amounts over $1 million above the exemption
- Filing requirement: IRS Form 706, due 9 months after death (6-month extension available)
Important: The 2025 Sunset Provision
The current elevated exemption ($13.99M) was created by the Tax Cuts and Jobs Act of 2017 and is scheduled to expire after December 31, 2025. Unless Congress acts, the exemption will drop to approximately $7 million (adjusted for inflation) starting in 2026. If you have an estate between $7 million and $14 million, this is a critical planning window. Consult an estate planning attorney about strategies to lock in the higher exemption before it expires.
What Counts as Part of the Estate
- Real estate (primary home, vacation property, rental properties)
- Bank accounts and cash
- Investment and brokerage accounts
- Retirement accounts (401(k), IRA)
- Life insurance death benefits (if the deceased owned the policy)
- Business interests and partnerships
- Personal property (vehicles, jewelry, art, collectibles)
- Trusts where the deceased retained control
For more details on estate administration, see our estate planning guide.
States with an Estate Tax (2026)
Twelve states and the District of Columbia impose their own estate tax, often with exemptions far below the federal level. If you live in one of these states, your estate could owe state estate tax even if it falls well below the federal threshold.
| State | Exemption | Top Rate |
|---|---|---|
| Connecticut | $13.99M (matches federal) | 12% |
| District of Columbia | $4.71M | 16% |
| Hawaii | $5.49M | 20% |
| Illinois | $4M | 16% |
| Maine | $6.8M | 12% |
| Maryland | $5M | 16% |
| Massachusetts | $2M | 16% |
| Minnesota | $3M | 16% |
| New York | $6.94M | 16% |
| Oregon | $1M | 16% |
| Rhode Island | $1.77M | 16% |
| Vermont | $5M | 16% |
| Washington | $2.193M | 20% |
Note: Exemption amounts are adjusted periodically for inflation. Check your state's revenue department for the most current figures.
New York's "Cliff" Problem
New York has one of the most punishing estate tax structures. If your estate exceeds the exemption by more than 5%, the entire estate is taxed from the first dollar, not just the amount over the exemption. For example, if the exemption is $6.94 million and your estate is worth $7.3 million (just 5.2% over), the entire $7.3 million is subject to estate tax. This "cliff" effect can result in a tax bill of $500,000 or more on an estate that is only slightly above the threshold.
States with an Inheritance Tax (2026)
Six states impose an inheritance tax on the people who receive assets. The tax rate depends on the relationship between the deceased and the beneficiary. Close relatives pay lower rates (or nothing), while unrelated beneficiaries pay the highest rates.
| State | Spouse | Children/Direct Descendants | Siblings | Unrelated |
|---|---|---|---|---|
| Iowa | Exempt | Exempt | 2% - 6% | 2% - 6% |
| Kentucky | Exempt | Exempt | 4% - 16% | 6% - 16% |
| Maryland | Exempt | Exempt | 10% | 10% |
| Nebraska | Exempt | 1% (over $100K) | 11% (over $40K) | 15% (over $25K) |
| New Jersey | Exempt | Exempt | 11% - 16% | 15% - 16% |
| Pennsylvania | Exempt | 4.5% | 12% | 15% |
Maryland is the only state in the country that imposes both an estate tax and an inheritance tax. However, the inheritance tax paid is credited against the estate tax, so families are not fully double-taxed.
Note that Iowa is phasing out its inheritance tax and will fully eliminate it by 2025 for most beneficiaries. Check your state's current rules, as these laws change frequently.
Strategies to Minimize Estate and Inheritance Taxes
Estate planning can significantly reduce or eliminate state-level tax exposure. Here are the most common strategies:
- Annual gift exclusion. You can give up to $18,000 per person per year (2026) without affecting your lifetime estate tax exemption. A married couple can give $36,000 per recipient. Over time, this can move substantial assets out of the taxable estate.
- Irrevocable life insurance trust (ILIT). Life insurance proceeds are included in your estate if you own the policy. Transferring ownership to an ILIT removes the death benefit from your taxable estate, potentially saving hundreds of thousands in taxes.
- Spousal portability. If your spouse dies first and does not use their full federal exemption, the surviving spouse can claim the unused portion by filing IRS Form 706. This effectively doubles the federal exemption to $27.98 million for the surviving spouse.
- Charitable giving. Assets left to qualified charities are deducted from the taxable estate. Charitable remainder trusts and donor-advised funds can provide income during your lifetime while reducing estate taxes at death.
- State residency planning. If you split time between a state with an estate tax and one without, establishing domicile in the tax-free state can save your heirs significantly. This requires more than just changing your address; you need to genuinely establish residency.
- Grantor retained annuity trust (GRAT). A GRAT allows you to transfer appreciating assets to your heirs while retaining an annuity. If the assets grow faster than the IRS assumed interest rate, the excess passes to your heirs tax-free.
- Family limited partnership (FLP). Transferring assets to an FLP and gifting limited partnership interests can allow valuation discounts of 20% to 35%, reducing the taxable value of the gift.
Filing Requirements and Deadlines
Understanding the filing obligations is critical for the executor or personal representative handling the estate:
- Federal estate tax (Form 706): Due 9 months after the date of death. A 6-month extension is available by filing Form 4768. Required only if the gross estate exceeds $13.99 million, or if the surviving spouse wants to claim portability of the unused exemption.
- State estate tax: Filing deadlines vary by state but are typically 9 months after death, matching the federal deadline. State forms are separate from the federal return.
- State inheritance tax: Filing deadlines range from 9 to 12 months depending on the state. The beneficiary is typically responsible for filing, though the executor often handles it.
- Final income tax returns: The deceased's final Form 1040 is due April 15 of the year following death. Estate income earned after death is reported on Form 1041.
For a complete overview of the probate process, including executor responsibilities and court filing requirements, see our probate guide.
States with No Estate or Inheritance Tax
The majority of states impose neither an estate tax nor an inheritance tax. If you live in one of these states and your estate is below the federal exemption, your heirs will owe zero death-related taxes:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.
Note that some of these states previously had estate taxes that have since been repealed. Delaware eliminated its estate tax in 2018, and New Jersey eliminated its estate tax in 2018 (though it still has an inheritance tax).
Frequently Asked Questions
What is the difference between estate tax and inheritance tax?
An estate tax is paid by the deceased person's estate before assets are distributed to heirs. An inheritance tax is paid by the individual beneficiaries who receive assets. The federal government only charges an estate tax, while some states charge one or both.
What is the federal estate tax exemption for 2026?
The federal estate tax exemption for 2026 is $13.99 million per individual, or $27.98 million for a married couple using portability. Estates below this threshold owe no federal estate tax. This elevated exemption is set to expire after 2025 unless Congress extends it, potentially dropping to approximately $7 million.
Which states have an estate tax?
As of 2026, twelve states and the District of Columbia impose their own estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. State exemptions are much lower than the federal exemption, starting at $1 million in Massachusetts and Oregon.
Which states have an inheritance tax?
Six states impose an inheritance tax on beneficiaries: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state that imposes both an estate tax and an inheritance tax. Spouses are exempt from inheritance tax in all six states, and most exempt direct descendants as well.
Does the surviving spouse have to pay estate or inheritance tax?
Transfers to a surviving spouse are exempt from federal estate tax through the unlimited marital deduction. All six states with an inheritance tax also exempt surviving spouses entirely. For state estate taxes, the exemption applies to the total estate value regardless of who inherits.