Estate vs Inheritance Tax: How Each State Differs

Oregon taxes estates above $1 million. The federal government does not touch an estate until it crosses $15 million per person in 2026. That 15-to-1 gap is the entire story of state-level death taxes, and it is the reason a household that owes zero federal estate tax can still hand its heirs a six-figure state bill.

The federal estate tax gets the headlines. The One Big Beautiful Bill Act, signed July 4, 2025, set a permanent $15 million per-person exemption beginning in 2026 and erased the scheduled cliff that would have cut that figure roughly in half. For the $5M–$25M households this analysis targets, the federal layer has gone quiet. The state layer has not. Twelve states plus the District of Columbia levy an estate tax versus federal estate tax on the estate itself, and five states levy an inheritance tax on the heirs who receive the assets. Maryland does both.

The two taxes are not the same tax

Most coverage blurs them. They are mechanically distinct, and the distinction changes who pays and how much.

An estate tax falls on the estate before anything reaches an heir. It is calculated on the total taxable estate above an exemption threshold, paid by the executor out of estate assets. An inheritance tax falls on each beneficiary individually, after distribution, and the rate usually scales to how closely related that beneficiary was to the deceased. Surviving spouses are exempt almost everywhere. A sibling, a niece, or an unrelated friend often is not.

One consequence of that structure: in inheritance-tax states, splitting a bequest among close relatives can produce a materially different bill than leaving the same dollar amount to a distant relative. The federal government runs only an estate tax — there is no federal inheritance tax — so every inheritance-tax question is a state question.

Sources: IRS, “What’s New — Estate and Gift Tax” (OBBBA, Public Law 119-21, 2026 exemption); Tax Foundation, “Estate and Inheritance Taxes by State,” data as of October 1, 2025.

Where the estate tax states draw the line

Twelve states and DC impose an estate tax, and the spread between them is enormous. Connecticut conforms to the federal exemption — $13.99 million as of the Tax Foundation’s October 2025 reading, with its estate tax statutorily capped at $15 million — and levies a flat 12%. At the other extreme, Oregon starts taxing at $1 million and Massachusetts at $2 million. A paid-off house and a healthy 401(k) clear those floors without anyone considering themselves wealthy.

Rate structure matters as much as the threshold. Most of these states run progressive brackets topping out at 16%, but Washington moved to the front of the pack in 2025. Under SB 5813, enacted May 2025 and effective July 1, 2025, Washington raised its top marginal rate from 20% to 35% and lifted its exemption from $2.193 million to $3 million. That 35% top rate is now the highest state estate tax rate in the country, applied to the largest estates.

Source: Tax Foundation, “Estate and Inheritance Taxes by State,” rates and exemptions as of October 1, 2025. Washington figures reflect SB 5813, effective July 1, 2025. Connecticut exemption shown at its 2025 federally conformed level; statutory cap is $15 million.

The inheritance tax states, and the relationship that decides the bill

Five states still levy an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa left this list on January 1, 2025, when its phased repeal completed. The defining feature of every one of these regimes is that the rate and exemption depend on who inherits, not just how much.

Consider the structure. Spouses are exempt across the board. Children and other close lineal relatives usually face low rates or generous exemptions — Pennsylvania taxes transfers to children at 4.5%, and exempts a surviving spouse entirely. Move outward to siblings, nieces, nephews, and unrelated heirs, and the rate climbs. Kentucky and New Jersey both top out at 16% for the most distant beneficiary classes. Nebraska shields the first $100,000 for close relatives but taxes remote heirs on far smaller amounts.

Source: Tax Foundation, “Estate and Inheritance Taxes by State,” data as of October 1, 2025. Exemptions shown are the maximum available; actual exemption and rate vary by the heir’s relationship to the decedent.

Maryland is the only state carrying both taxes. An estate there can face an estate tax above the $5 million exemption and then, separately, an inheritance tax on distributions to non-exempt heirs — though the state reduces the estate tax by the amount of inheritance tax paid, and imposes no inheritance tax when the estate’s total value stays at or below $50,000. Governor Wes Moore proposed in 2025 to drop the inheritance tax while cutting the estate exemption from $5 million to $2 million; the legislature did not adopt it. The double-tax structure stands.

The cliff most coverage skips

Here is what the state-by-state lists routinely miss: a handful of these states do not tax only the amount above the exemption. They tax the entire estate once you cross the line.

New York runs the most cited version. Its 2025 exemption is $7.16 million. An estate within 105% of that figure gets the benefit of the exemption and is taxed only on the excess. Cross 105% — roughly $7.52 million — and the exemption vanishes entirely. The estate is taxed from the first dollar. Practitioners call it the New York cliff, and it means an estate a few hundred thousand dollars over the line can owe dramatically more than one sitting just under it. Massachusetts applies a related trap: once an estate exceeds $2 million, the tax computation reaches back into the full taxable estate rather than sparing the first $2 million, softened only by a credit.

Compare that to the federal system, which taxes only the marginal dollar above $15 million. The contrast is the practical core of the will versus trust cost comparison question for residents of cliff states, because credit shelter and bypass trust structures exist largely to keep a married couple’s combined estate from tipping over a state line that offers no portability.

The portability gap between federal and state

Portability lets a surviving spouse inherit the unused portion of a deceased spouse’s federal exemption. If the first spouse to die uses none of their $15 million, the survivor can elect to carry it forward, reaching a combined $30 million shield. The election is not automatic — it requires filing Form 706 — and missing it forfeits the benefit.

State estate taxes generally offer no equivalent. Connecticut, Massachusetts, Oregon, New York: a spouse who dies without using their state exemption typically loses it. That single asymmetry is why bypass trusts, which the federal portability era rendered nearly obsolete at the federal level, remain a live planning lever at the state level. The mechanics of the surviving spouse portability election reward inaction federally and punish it at the state line, and reconciling those opposite incentives is where most of the real complexity sits.

Finluxy Estate Tax Exposure Index

This cluster’s proprietary metric was built to quantify the TCJA sunset cliff — the gap between tax owed under the high exemption and tax owed after the scheduled 2026 reversion. OBBBA eliminated that reversion. So the Index reframes around the exposure that actually remains for $5M–$25M households: federal versus state. For most estates in this range, federal exposure is now zero. The state column is where the number lives.

Index methodology: federal column applies the 2026 $15M / $30M exemption (IRS, OBBBA) at 40% on the marginal excess. State column applies exemptions and rates from Tax Foundation data as of October 1, 2025. State figures are illustrative ranges, not point estimates — actual liability depends on residency, deductions, beneficiary structure, and trust planning, which cannot be modeled generically. Where a state cliff applies, exposure is shown as conditional on crossing the threshold.

The Index makes the central finding visible: for a household worth $5M–$25M, the question “do I owe estate tax” has almost nothing to do with Washington, D.C. and almost everything to do with the state on the death certificate. A $12 million estate owes the federal government nothing whether it sits in Texas or Oregon. In Oregon it owes the state a meaningful sum; in Texas, nothing.

What the data shows that most coverage overlooks

The standard framing treats federal estate tax as the main event and state taxes as a footnote. The exemption math inverts that. The federal floor sits at $15 million. Nine of the twelve estate tax states set their floor at or below $7 million, and four of those at or below $3 million. The ratio of estates exposed to state tax versus federal tax, within the $5M–$25M band, is not close.

The more specific finding: thirty-three states impose neither tax. The entire state-level estate and inheritance tax burden in the United States is concentrated in roughly a third of jurisdictions, several of them high-cost coastal states where a primary residence alone can consume half the exemption. Florida, Texas, and most of the Mountain West levy nothing. That geographic concentration — not the federal rate, not the trust structure — is the variable that moves the number most for this income tier. It also explains why TCJA sunset exemption risk mattered far less to a Florida resident than to a New Yorker even before OBBBA settled the federal question.

Practical context for the $150k+ household

For a household earning $150k+ and building toward the $5M–$25M net worth range, three thresholds determine everything, and none of them is the federal $15 million.

The first is residency. State estate and inheritance tax exposure follows domicile and, for real property, situs. A household accumulating wealth in Massachusetts or Oregon faces a tax that a structurally identical household in Florida does not. Retirement relocation decisions that get made for weather or income tax carry an estate tax consequence that rarely enters the conversation, and the dollar value of that consequence can exceed years of income tax savings. The second threshold is the cliff. In New York or Massachusetts, the planning goal is not minimizing the marginal rate — it is staying on the correct side of a line where the entire estate flips from untaxed to taxed. That is a different optimization problem, and it rewards annual exclusion gifting math and trust structures that pull assets below the threshold. A married couple in a cliff state with no state portability has a structural reason to consider a bypass trust that a couple in Florida can ignore entirely.

The third is the inheritance tax beneficiary map. If you live in Pennsylvania, Kentucky, Nebraska, New Jersey, or Maryland and intend to leave assets to anyone other than a spouse or child — a sibling, a niece, a partner you never married — the rate on that specific bequest can run to 15% or 16%. Restructuring who receives what, or routing assets through vehicles that change the taxable event, is where the analysis earns its keep. Tools like a GRAT and its tax arbitrage, a SLAT setup and ongoing cost, or an ILIT for life insurance proceeds address federal and state exposure differently, and the right choice turns on which state line you are managing against. A household sorting through the estate planning cost guide for $5M to $25M should price the plan against state exposure first, because for most of this tier that is the only exposure that produces a bill — and the cost of the planning should be weighed against a state liability that, in a cliff state, can swing by hundreds of thousands of dollars over a threshold a few percentage points wide.