State Estate &
Inheritance Taxes

The gap the federal exemption leaves

With the federal basic exclusion at $15,000,000 for 2026, very few estates owe federal estate tax. Twelve states and the District of Columbia still impose their own estate tax, most with exemptions far below the federal amount, and five states impose an inheritance tax on beneficiaries. Maryland has both. For many clients, the state return is now the only transfer tax return that matters, and it can be required even when no federal Form 706 is.

Estate tax states, deaths in 2026

Exemptions, rates, and mechanics

State	Exemption	Rates	Notes
Connecticut	$15,000,000	12%	Matches federal; separate gift tax; combined tax capped at $15M
District of Columbia	$4,988,400	11.2% to 16%
Hawaii	$5,490,000	10% to 20%	Portability allowed
Illinois	$4,000,000	Up to 16%	Not indexed; taxable gifts count toward the filing threshold
Maine	$7,160,000	8% to 12%	Gifts within 1 year of death count toward the filing threshold
Maryland	$5,000,000	Up to 16%	Portability allowed; also has an inheritance tax
Massachusetts	$2,000,000	Up to 16%	$99,600 credit, so no cliff; from Aug. 1, 2025, Massachusetts-only QTIP added back and nonresidents taxed on in-state property alone
Minnesota	$3,000,000	13% to 16%	Taxable gifts within 3 years of death added back
New York	$7,350,000	3.06% to 16%	Cliff: no exclusion above 105% of it; 3-year gift add-back
Oregon	$1,000,000	10% to 16%	Not indexed
Rhode Island	$1,838,056	Up to 16%	Indexed yearly
Vermont	$5,000,000	16%	Flat rate on the excess; gifts within 2 years count toward the filing threshold
Washington	$3,000,000	10% to 20%	Deaths from July 1, 2026 (top rate 35% before)

Which estates are exposed

A state generally taxes the estate of a resident decedent, excluding real and tangible personal property located in another state, and the estate of a nonresident decedent to the extent of real and tangible property located within the state. The second rule catches clients who have moved: a Florida domiciliary who kept a house in Maine or Massachusetts can owe an ancillary estate tax there. Domicile at death, and the situs of each parcel of real estate, should be confirmed early in every administration.

Mechanics that change the answer

• New York’s cliff: the exclusion phases out between 100% and 105% of the $7,350,000 exclusion amount, and an estate above 105% loses it entirely, so the whole estate is taxed. A charitable bequest sized to bring the taxable estate under the threshold can save more than it costs.
• Gift add-backs: New York adds back taxable gifts made within three years of death (for deaths before January 1, 2032), and Minnesota does the same. Maine, Vermont, and Illinois count certain lifetime gifts toward their filing thresholds.
• Connecticut: the exemption matches the federal $15,000,000, but Connecticut also has a gift tax with the same exemption, and the combined estate and gift tax is capped at $15,000,000.
• Massachusetts: every estate receives a $99,600 credit, and there is no tax if the taxable estate is $2,000,000 or less. The old cliff is gone. For deaths on or after August 1, 2025 (St. 2025, c. 9, §§35 and 136), three computation changes apply: property that received a Massachusetts-only marital deduction at the first spouse’s death (Massachusetts QTIP) is added back at the survivor’s death; a resident’s real and tangible property located outside Massachusetts is removed from the estate before the tax is computed, with no deductions attributable to it; and a nonresident’s tax is computed on the Massachusetts real and tangible property alone rather than as a share of the whole estate.
• No portability in most states: only Hawaii and Maryland let a surviving spouse use the deceased spouse’s unused state exemption. Elsewhere, sheltering both spouses’ state exemptions generally requires funding a credit shelter trust at the first death.
• Washington: for deaths on or after July 1, 2026, the top rate returned to 20% (from 35%) and the exemption is $3,000,000.

Interaction with the federal return

State estate, inheritance, legacy, and succession taxes paid are deductible on Form 706 under IRC 2058. The deduction only matters when the estate also owes federal tax, but it should be coordinated when both returns are filed. State returns carry their own forms, due dates, extension procedures, and release or waiver requirements, which can hold up the transfer of real estate or financial accounts until the state tax is cleared.

Inheritance taxes

An inheritance tax is imposed on each beneficiary’s share, at a rate that depends on the beneficiary’s relationship to the decedent. It applies based on the decedent’s domicile (and in-state property of nonresidents), not where the beneficiary lives. The personal representative typically files the return and pays the tax from the beneficiary’s share unless the will directs otherwise.

Inheritance tax states, 2026

What each beneficiary owes, by relationship

State	Spouse	Children and grandchildren	Siblings	Others
Kentucky	Exempt	Exempt	Exempt	4% to 16% (nieces, nephews, in-laws); 6% to 16% (others)
Maryland	Exempt	Exempt	Exempt	10%
Nebraska	Exempt	1% above $100,000	1% above $100,000	11% above $40,000 (aunts, uncles, nieces, nephews); 15% above $25,000 (others)
New Jersey	Exempt	Exempt	11% to 16% above $25,000	15% to 16%
Pennsylvania	0%	4.5%	12%	15%

What we handle

• Domicile and property situs analysis at the start of the administration
• Resident and nonresident state estate tax returns
• Inheritance tax returns and allocation of the tax among beneficiaries
• Coordination with Form 706, including the IRC 2058 deduction
• Credit shelter trust funding where the state does not allow portability
• State tax releases and waivers needed to transfer property

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