Navigating State Estate Taxes: A Guide for 2026

Americans face taxes throughout their lives, but the obligations don’t necessarily end at death. An estate tax can be levied on the assets a person owned or had interests in when they died. This tax is paid by the estate itself, potentially reducing the inheritance received by beneficiaries. Even as the federal government imposes an estate tax, the high threshold means most individuals aren’t affected. However, state estate taxes often have lower thresholds, requiring more people to plan accordingly.

Who Levies an Estate Tax?

Both the federal government and a dozen states, along with the District of Columbia, levy estate taxes.¹

Federal Estate Tax Rates and Exemption

Federal estate tax rates range from 18% to 40%, depending on the amount exceeding the exemption threshold. For 2025, the exemption is $13.99 million per person, increasing to $15 million in 2026.² In 2023, the IRS processed 9,024 federal estate tax returns, with approximately 40% being taxable, generating $44.4 billion in revenue.¹

State Estate Taxes: A Closer Look

State estate taxes often present a greater concern due to their lower exemption levels and potentially higher tax rates. Sam Tutko, vice president of Miser Wealth Partners, notes that state thresholds are easier to reach.

For example, Oregon’s exemption is only $1 million.

Cliff States: Illinois and Modern York

Illinois and New York are considered “cliff states” due to their unique estate tax structures.

• Illinois: An estate tax is triggered on the entire estate if its value exceeds $4 million, with progressive tax rates ranging from 0.8% to 16%.
• New York: The estate tax, ranging from 3.06% to 16%, applies if the estate’s value exceeds $7.16 million. However, if the estate is 105% or more of the exemption amount (approximately $7.52 million in 2025), the tax applies to the entire estate.

Other States to Watch

• Maryland: Imposes both an estate tax (0.9% to 16% on estates exceeding $5 million) and an inheritance tax, applicable to non-immediate family members receiving assets over $1,000.
• Oregon: Has the lowest exemption at $1 million, potentially impacting many upper-middle-income families. Tax rates range from 10% to 16%.
• Massachusetts: Estates exceeding $2 million are taxed at rates from 0.8% to 16.0%.
• Washington: The exemption is $2.193 million (through June 30, 2025) and $3 million (July 1, 2025 – December 31, 2025), with rates from 10% to 25%.
• Minnesota: Has a $3 million exemption and tax rates between 13% and 16%.

Avoiding Estate Taxes: Proactive Planning

Experts recommend proactive planning while still alive to mitigate estate tax liabilities. Working with a team of professionals – an attorney, accountant, and financial advisor – is crucial.

Strategies to consider include:

• Annual tax-free gifting ($19,000 per person in 2025)
• Irrevocable trusts (removing assets from the taxable estate, but with limited flexibility)
• Contributions to 529 plans and other educational accounts
• Charitable donations through wills, trusts, or estate plans

Careful consideration should be given to irrevocable trusts, as their terms and beneficiaries cannot be altered after creation.

Key Takeaways

• State estate taxes can significantly impact inheritances, even if the federal estate tax doesn’t apply.
• “Cliff states” like Illinois and New York require careful planning to avoid unexpectedly high tax burdens.
• Proactive estate planning with professional guidance is essential to minimize tax liabilities.