Twelve states and the District of Columbia impose an estate tax, and five states impose an inheritance tax. Maryland imposes both. State exemption thresholds start as low as $1 million, so estate and inheritance taxes by state can hit families that owe nothing to the IRS, whose 2026 federal estate tax exemption sits at $15 million per person.1Internal Revenue Service. What’s New — Estate and Gift Tax
Estate Tax and Inheritance Tax Are Not the Same
An estate tax is paid by the estate itself before assets go out to heirs. The personal representative files a return, calculates what the estate owes based on total value minus debts and deductions, and pays from estate funds. The identities of the beneficiaries don’t change the bill.
An inheritance tax works the other way. The person receiving the assets owes the tax, and the rate depends on their relationship to the deceased. Surviving spouses typically pay nothing. A sibling might pay a moderate rate. An unrelated friend can face the steepest rate in the state. The individual share matters more than the estate’s total size.
Which States Have an Estate Tax
These 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. Each sets its own exemption, so an estate well under the $15 million federal line can still trigger a state bill.
Exemption amounts for deaths in 2026:
- Connecticut ties its exemption to the federal basic exclusion. For 2025 that was $13.99 million; for 2026 it should rise to match the new $15 million federal threshold.2Connecticut State Department of Revenue Services. Estate and Gift Tax Information
- Hawaii: $5.49 million
- Illinois: $4 million
- Maine: $6.8 million
- Maryland: $5 million
- Massachusetts: $2 million3Commonwealth of Massachusetts. Massachusetts Estate Tax Guide
- Minnesota: $3 million
- New York: $7.35 million4Department of Taxation and Finance. Estate Tax
- Oregon: $1 million
- Rhode Island: approximately $1.77 million
- Vermont: $5 million
- Washington: filing threshold of approximately $2.19 million
- District of Columbia: exemption amount varies by year
Oregon and Massachusetts sit at the bottom. A $2.5 million estate is modest by many standards and still triggers estate tax in both.
State Estate Tax Rates
Most state estate taxes use graduated rates that top out between 12% and 16%. Washington is the outlier. For deaths on or after July 1, 2025, Washington’s top marginal rate is 35%, applied to taxable amounts above $9 million.5Washington Department of Revenue. Estate Tax Tables That’s the highest state estate tax rate in the country by a wide margin.
New York’s Cliff
New York’s estate tax has a trap. The 2026 exclusion is $7.35 million, but if the taxable estate exceeds 105% of that amount (roughly $7.72 million), the exclusion disappears entirely and the estate is taxed from the first dollar.4Department of Taxation and Finance. Estate Tax An estate worth $7.3 million owes nothing. An estate worth $7.8 million could owe tax on the entire $7.8 million. Valuation precision matters enormously for New York estates near the line.
Which States Have an Inheritance Tax
Five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa’s inheritance tax was fully repealed effective January 1, 2025, so anyone dying in 2026 or later owes nothing under the old Iowa rules.6Justia. Iowa Code 450.98 – Tax Repealed
In every one of these states, the rate depends on the beneficiary’s relationship to the deceased. States group heirs into classes, and closer relatives pay less or nothing.
How Relationship Drives the Rate
Surviving spouses are exempt in all five states. Children, grandchildren, and parents are also exempt in most of them. In New Jersey, that exempt group also includes stepchildren and domestic partners.7NJ.gov. Inheritance Tax Beneficiary Classes
Siblings face moderate rates. In Pennsylvania, siblings pay a flat 12%, while direct descendants pay 4.5% and other heirs pay 15%.8Commonwealth of Pennsylvania. Inheritance Tax
Unrelated beneficiaries face the steepest rates. In Kentucky, this group pays graduated rates from 6% to 16% after a small $500 exemption.9Kentucky Department of Revenue. A Guide to Kentucky Inheritance and Estate Taxes Leaving assets to a friend, a non-exempt charity, or a distant relative can produce a substantial bill.
Each beneficiary is individually responsible for their own inheritance tax, though executors often withhold it from distributions before anyone receives a share.
Maryland: The Only State With Both
Maryland is the one state imposing both an estate tax and an inheritance tax, and at first glance that looks like double taxation. The state builds in an offset. Inheritance tax paid to the Register of Wills is subtracted from the gross estate tax liability, and if the inheritance tax equals or exceeds what the estate would owe in estate tax, no additional estate tax is due.10Register of Wills. Maryland Estate Tax Tip 42
Timing still matters. If the inheritance tax hasn’t been paid by the estate tax due date, interest accrues on the unpaid estate tax balance until the inheritance payments catch up.10Register of Wills. Maryland Estate Tax Tip 42 Executors need to coordinate both filings.
Portability Mostly Doesn’t Carry Over to States
At the federal level, a surviving spouse can claim the deceased spouse’s unused estate tax exemption through a portability election, effectively doubling the couple’s exemption to $30 million in 2026.1Internal Revenue Service. What’s New — Estate and Gift Tax
Almost no estate tax state offers the same benefit. Only Hawaii and Maryland allow a surviving spouse to claim the deceased spouse’s unused state exemption. Everywhere else, the unused exemption vanishes at the first death. For a Massachusetts couple with a combined $3.5 million estate, the first spouse’s death can waste the entire $2 million state exemption unless assets are structured to use it. That’s the main reason estate planning attorneys in these states recommend credit shelter trusts rather than leaving everything outright to the surviving spouse.
What Happens When You Own Assets in More Than One State
Your domicile is the one state you consider your permanent home, and it controls which state taxes your worldwide intangible assets (stocks, bonds, bank accounts, retirement funds) at death. You can have vacation homes in several states. You can only have one domicile.
States look at concrete evidence when determining domicile: voter registration, driver’s license, the address on your federal tax return, primary bank accounts, and local affiliations. When someone claims to have moved from an estate tax state to a no-tax state, the original state scrutinizes whether they actually severed ties or just started wintering elsewhere. Failing to cleanly establish domicile in one state can leave two states each claiming the right to tax your intangibles. The defense is a paper trail: update the license, voter registration, bank accounts, memberships, and even where you see your doctors.
Real estate is taxed by the state where it sits, regardless of where you live. Someone domiciled in Florida who owns a vacation home in Massachusetts may owe Massachusetts estate tax on that property.11Illinois Attorney General. Estate Tax Instruction Fact Sheet The same rule reaches rental property, timberland, and other tangible assets physically located in a taxing state. Transferring title typically requires ancillary probate in the property’s state, which triggers that state’s ability to assess a proportional share of estate tax. The domicile state usually offers a credit for estate taxes paid to the situs state, but the multi-state filing burden remains. Holding the property in a revocable trust or LLC can sometimes avoid ancillary probate, though the situs state’s estate tax may still apply.
Filing Deadlines and Penalties
The federal estate tax return is due within nine months of the date of death, and most estate tax states follow the same timeline.12Office of the Law Revision Counsel. 26 USC 6075 – Time for Filing Estate and Gift Tax Returns Extensions in most states extend the time to file, not the time to pay. Interest on unpaid tax typically runs from the original due date regardless.
Late-payment penalties vary but stack up fast. Kentucky charges 2% of the tax due for every 30 days a payment is late, capped at 20%, plus a potential 25% collection fee if the balance remains unpaid after 60 days. Interest on unpaid Kentucky tax runs at 9% per year for 2026.13Kentucky Department of Revenue. Penalties, Interest and Fees Other states apply similar structures.
Inheritance tax states often have separate filing requirements for each beneficiary, and executors may need to obtain tax waivers before distributing certain assets. In Maryland, the inheritance tax is collected by the Register of Wills in the county where the deceased lived or owned property.14Register of Wills. Inheritance Tax – Register of Wills