Free Guide to State Estate Tax Laws

Understanding State Estate Taxes: What They Are and How They Work

An estate tax is a tax that some states place on money and property left behind when someone passes away. Unlike federal estate taxes, which apply to all states, estate taxes at the state level vary significantly. Some states have them, and others do not. This guide focuses on state-level estate taxes rather than the federal estate tax, which is a separate system with different rules and thresholds.

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When a person dies, their estate includes everything they owned: houses, cars, bank accounts, investments, jewelry, and other valuables. Before money and property are passed to heirs, the state may calculate whether an estate tax is owed. The amount of tax depends on several factors, including the total value of the estate, which state the person lived in or owned property in, and the specific laws of that state.

Not all estates owe state estate taxes. Many states have exemption thresholds, meaning estates below a certain value do not owe any tax. For example, a state might only require estate tax on estates worth more than $5 million. Additionally, some states have inheritance taxes instead of estate taxes. While these sound similar, they work differently. An inheritance tax is paid by the people who receive money or property (the heirs), whereas an estate tax is paid by the deceased person's estate before distribution.

Understanding whether your state has an estate tax and what the rules are can help families plan ahead. This is why exploring information about state estate tax laws matters. The rules change, and what applies in one state may not apply in another.

Practical Takeaway: Review which state you are considered a resident of for tax purposes. This residency status often determines which state's estate tax laws apply to your situation. Keep records of where you own property, as property location can also trigger state estate tax requirements.

The Twelve States with Estate Taxes and Their Current Rules

As of 2024, twelve states and the District of Columbia have state estate taxes. These states are Connecticut, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Each of these states has its own rules about exemption amounts, tax rates, and how the tax is calculated.

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Connecticut exempts estates worth less than $12.92 million from state estate tax (as of 2024). The tax rate ranges from 7.2% to 12%. Delaware has a $5.49 million exemption and charges between 0.8% and 16%. Illinois does not have an exemption threshold, meaning any estate with a net value of $1 or more may owe tax, though rates are lower at 0.8% to 16%. These differences show how dramatically the rules vary from state to state.

New York exempts estates over $6.94 million and charges rates between 3.06% and 16%. Washington state has no exemption amount and taxes estates at a flat 20% on amounts over $2.193 million (as of 2024). Oregon has a $1 million exemption with rates ranging from 0.8% to 16%. These thresholds and rates change annually, and some states adjust them based on inflation.

The other states with estate taxes—Kentucky, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont—have their own exemption levels and rate structures. Some offer spousal exemptions, meaning a surviving spouse may have a higher exemption or different rules. Families with significant assets living in these states should understand the specific numbers that apply to their situation.

The exemption amounts matter most. If an estate falls below the exemption, no state estate tax is owed, regardless of the tax rate. However, if the estate exceeds the exemption, the tax rate applies only to the amount above the threshold. Understanding these numbers helps people understand whether their estate might be affected.

Practical Takeaway: Write down the name of your state and note whether it appears on the twelve-state list above. If it does, research the current exemption amount and tax rate for your state, as these numbers change annually. You can find the most current information through your state's department of revenue or tax website.

Inheritance Taxes: States That Use This System Instead

Six states use an inheritance tax system rather than an estate tax system. These states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. An inheritance tax places the tax burden on the people who inherit money or property, not on the estate itself. This distinction matters because different rules apply to different types of heirs.

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In states with inheritance taxes, the tax rate often depends on the relationship between the deceased person and the person who inherits. Spouses and children often pay a lower rate or no tax at all, while more distant relatives or non-relatives pay higher rates. For example, in New Jersey, a surviving spouse pays 0% on the inheritance, while a sibling might pay 11% to 16%. In Pennsylvania, spouses and children under age 21 are exempt, while other beneficiaries pay between 4.5% and 15%.

Inheritance tax exemptions vary by state and relationship. Some states exempt certain amounts for spouses or direct descendants, while others exempt certain types of property. For instance, life insurance proceeds are often exempt from inheritance tax in many states. Property that passes through a will may be taxed differently than property that passes through beneficiary designations or trusts.

The mechanics of inheritance tax differ from estate tax in a practical way. With an inheritance tax, the heirs or the estate executor may need to file tax returns and report the inheritance to the state. The state then calculates what each heir owes based on their relationship to the deceased and the value of what they received. This can make the process more complex when multiple heirs are involved.

Some states have both an inheritance tax and an estate tax, though the rules vary about how they interact. Families in these states should understand how both systems might apply to their situation. The guide information helps clarify whether an inheritance tax, an estate tax, or both may apply to a particular estate.

Practical Takeaway: If your state appears on the inheritance tax list (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania), note your relationship to any person whose estate you might inherit from. Your relationship status directly affects the tax rate you would owe, so understanding this helps you grasp how the tax might apply to you.

State Estate Tax Exemptions and How Portability Works

An exemption is the amount of estate value that is protected from state estate tax. Once an estate exceeds this threshold, the tax applies only to the amount above the exemption. Exemption amounts vary widely by state and change annually. Understanding your state's exemption helps determine whether an estate tax will be owed.

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Some states tie their exemption amounts to the federal exemption amount, which changes periodically. Other states have their own exemption amounts that may be higher or lower than the federal amount. For 2024, the federal estate tax exemption is $13.61 million per person, but this amount is scheduled to decrease to around $7 million in 2026 unless Congress makes changes. However, state exemptions operate independently and are not affected by federal changes.

Portability is a rule that allows a surviving spouse to use any unused exemption from a deceased spouse's estate. In states that allow portability, if a spouse dies and does not use their full exemption, the surviving spouse can combine that unused amount with their own exemption. For example, if a state has a $5 million exemption and a spouse dies having used only $2 million of it, the surviving spouse could have a $8 million combined exemption ($5 million + $3 million unused). Not all states allow portability, so families should research whether their state recognizes this option.

Married couples can use portability to plan their estates more effectively. By understanding how much exemption each spouse has and whether unused amounts transfer, couples can structure their estates to minimize taxes. Some couples use trusts or other strategies to take full advantage of both spouses' exemptions, even in states without automatic portability.

Exemption amounts can change due to state legislation. Some states increase exemptions to match federal changes, while others keep exemptions stable. A few states have decreased exemptions in recent years. Because of these changes, families should review their estate situation periodically to understand whether their estate size relative to the current exemption threshold might trigger estate tax.

Practical Takeaway: