Estate and inheritance tax affects more families than most people realize. If someone you love has passed away — or you are planning ahead — understanding these taxes can save your family thousands of dollars. The federal government and several states impose taxes when wealth transfers at death.
- What Is Estate and Inheritance Tax?
- How Estate and Inheritance Tax Works at the Federal Level
- Federal Estate Tax Rates for 2026
- Estate and Inheritance Tax: State-by-State Rules
- Key Deadlines and Time Limits for Estate and Inheritance Tax
- The 2026 Gift Tax and How It Connects to Estate Tax
- Common Mistakes to Avoid With Estate and Inheritance Tax
- The Costs Involved in Estate and Inheritance Tax
- How Estate and Inheritance Tax Differs Across States
- How to Handle Estate and Inheritance Tax Without a Lawyer (and When You Need One)
- Strategies That May Reduce Estate and Inheritance Tax
- What Changed in 2026: The TCJA and the One, Big, Beautiful Bill
- What to Do Next
- Frequently Asked Questions About Estate and Inheritance Tax
However, the rules changed significantly in 2026. The federal estate tax exemption now sits at $15 million per person. Yet some states tax estates as small as $1 million. Knowing which taxes apply to your situation is the first step toward protecting your family’s financial future.
What Is Estate and Inheritance Tax?
These are two different taxes that apply when someone dies. They sound similar but work in opposite directions. Understanding the difference matters for every family navigating this process.
Estate tax is paid by the deceased person’s estate. It is calculated on the total value of everything the person owned at death. The executor files the return and pays the tax before distributing assets to heirs. Think of it as a tax on the right to transfer wealth. For a plain-English breakdown of key terms, see our estate planning glossary.
Inheritance tax is paid by the person who receives the inheritance. The tax rate typically depends on the heir’s relationship to the deceased. Spouses almost always pay nothing. Children usually pay little or nothing. Distant relatives and unrelated heirs pay the highest rates.
In most cases, estate and inheritance tax only applies to larger estates at the federal level. However, state-level taxes can kick in at much lower thresholds. As a result, families in certain states face tax bills that catch them off guard.
How Estate and Inheritance Tax Works at the Federal Level
The federal estate tax applies to the total value of a deceased person’s estate. This includes real estate, bank accounts, investments, retirement accounts, life insurance proceeds, and business interests. In 2026, the basic exclusion amount is $15 million per individual. This means most estates owe nothing to the federal government.
When an estate exceeds the $15 million threshold, the amount above that line is taxed at rates up to 40%. The executor must file IRS Form 706 within nine months of the date of death. An automatic six-month extension is available by filing Form 4768.
For married couples, portability allows a surviving spouse to use the deceased spouse’s unused exemption. This is called the Deceased Spousal Unused Exclusion (DSUE). In 2026, a married couple can effectively shield up to $30 million from federal estate tax. However, portability must be elected on a timely filed Form 706 — even if no tax is owed.
The federal government does not impose an inheritance tax. Only states do. There is also no federal estate and inheritance tax on assets left to a surviving spouse. The unlimited marital deduction allows spouses to inherit any amount tax-free at the federal level.
Federal Estate Tax Rates for 2026
The federal estate tax uses a graduated rate structure. However, the $15 million exemption means only the amount above that threshold is taxed. Here are the brackets that apply to the taxable portion of an estate:
| Taxable Amount Over Exemption | Tax Rate |
|---|---|
| $0 – $10,000 | 18% |
| $10,001 – $20,000 | 20% |
| $20,001 – $40,000 | 22% |
| $40,001 – $60,000 | 24% |
| $60,001 – $80,000 | 26% |
| $80,001 – $100,000 | 28% |
| $100,001 – $150,000 | 30% |
| $150,001 – $250,000 | 32% |
| $250,001 – $500,000 | 34% |
| $500,001 – $750,000 | 37% |
| $750,001 – $1,000,000 | 39% |
| Over $1,000,000 | 40% |
For example, an estate worth $16 million in 2026 would owe tax only on the $1 million above the exemption. The effective rate on that $1 million would be roughly $345,800. The top 40% rate only applies to taxable amounts exceeding $1 million above the exemption.
Estate and Inheritance Tax: State-by-State Rules
This is where estate and inheritance tax gets complicated. The federal exemption may protect most families from federal tax. But state taxes are a different story. Twelve states and the District of Columbia impose their own estate tax. Six states impose an inheritance tax. Maryland imposes both.
State exemptions are often far lower than the federal threshold. For example, Oregon taxes estates over $1 million. Massachusetts taxes estates over $2 million. If your loved one lived in — or owned property in — one of these states, you may owe state tax even if no federal tax is due. To find the specific rules where your family member lived, visit our 51-state estate and inheritance tax directory.
States With an Estate Tax (2026)
| State | 2026 Exemption | Top Tax Rate | Portability? | Notable Detail |
|---|---|---|---|---|
| Connecticut | $15,000,000 | 12% (flat) | No | Only state with its own gift tax |
| Hawaii | $5,490,000 | 20% | Yes | Highest top rate in the country |
| Illinois | $4,000,000 | 16% | Yes | Exemption unchanged since 2013 |
| Maine | $7,000,000 | 12% | Yes | Rates range from 8% to 12% |
| Maryland | $5,000,000 | 16% | Yes | Also has inheritance tax |
| Massachusetts | $2,000,000 | 16% | No | Cliff tax — entire estate taxed if over $2M |
| Minnesota | $3,000,000 | 16% | No | Exemption adjusted for inflation |
| New York | $7,350,000 | 16% | Yes | Cliff: estate taxed from $0 if over 105% of exemption |
| Oregon | $1,000,000 | 16% | No | Lowest exemption in the country |
| Rhode Island | $1,838,056 | 16% | No | Adjusted annually for inflation |
| Vermont | $5,000,000 | 16% | No | Flat rate on value above exemption |
| Washington | $3,000,000 | 20% | No | Exemption frozen at $3M as of July 1, 2026 |
| District of Columbia | $4,988,400 | 16% | No | Adjusted annually for inflation |
Watch out for the Massachusetts and New York “cliff.” In Massachusetts, if an estate is worth $2,000,001, the entire estate is taxed from the first dollar — not just the $1 above the exemption. An estate of $2.1 million could face a tax bill over $100,000. New York has a similar cliff: once the estate exceeds 105% of the exemption ($7,717,500 in 2026), the entire estate becomes taxable.
States With an Inheritance Tax (2026)
Inheritance tax works differently from estate tax. The heir pays based on their relationship to the deceased. Closer relatives typically pay lower rates or nothing at all. Here are the six states that impose an inheritance tax in 2026:
| State | Spouse Rate | Children/Lineal Heirs | Siblings | Other Heirs | Exemption Threshold |
|---|---|---|---|---|---|
| Kentucky | Exempt | Exempt | 4–16% | 6–16% | $1,000 for non-exempt heirs |
| Maryland | Exempt | Exempt | Exempt | 10% (flat) | Spouses, children, parents, siblings exempt |
| Nebraska | Exempt | 1% over $100,000 | 11% over $40,000 | 15% over $25,000 | Varies by relationship |
| New Jersey | Exempt | Exempt | 11–16% | 15–16% | $25,000 for non-exempt heirs |
| Pennsylvania | Exempt | 4.5% | 12% | 15% | Children under 21 exempt |
Iowa repealed its inheritance tax effective January 1, 2025. If your family member passed away in Iowa after that date, no inheritance tax applies. For families dealing with estate and inheritance tax in Pennsylvania, note that even direct children pay 4.5% on their inheritance — one of the few states that taxes children at all.
Key Deadlines and Time Limits for Estate and Inheritance Tax
Missing a deadline can cost your family money in penalties and lost opportunities. Here are the critical dates every executor and heir should know.
| Deadline | What It’s For | How to Extend |
|---|---|---|
| 9 months after death | Federal Form 706 (estate tax return) | File Form 4768 for 6-month extension |
| 9 months after death | Most state estate tax returns | Check state rules — some auto-extend with federal |
| 9 months after death | Portability election (DSUE) | Must be on timely filed Form 706 |
| April 15 of year after death | Final individual income tax return (Form 1040) | Standard extension rules apply |
| Varies by state | State inheritance tax returns | Check state revenue department |
For example, if someone died on March 1, 2026, the federal estate tax return would be due December 1, 2026. With an extension, it would be due June 1, 2027. If you are handling an estate with tax obligations, consider consulting a licensed attorney or CPA as soon as possible. The probate process itself has separate deadlines — see our 51-state probate directory for those details.
The 2026 Gift Tax and How It Connects to Estate Tax
The gift tax and the estate tax are part of the same unified system. Gifts made during your lifetime can reduce the amount sheltered from estate tax at death. However, the annual gift tax exclusion lets you give away a certain amount each year without affecting your lifetime exemption at all.
For 2026, the annual gift tax exclusion is $19,000 per recipient. A married couple can give $38,000 per recipient per year — to as many people as they want — without filing a gift tax return. Gifts to a non-citizen spouse are excluded up to $194,000 per year.
Gifts above the annual exclusion reduce your $15 million lifetime exemption dollar for dollar. For example, if you give $119,000 to one person in 2026, the first $19,000 is excluded. The remaining $100,000 reduces your lifetime exemption to $14.9 million. Connecticut is the only state that imposes its own gift tax — something to keep in mind if you live there.
Importantly, gifts made during the higher-exemption years (2018–2025 and now 2026 forward) are protected. The IRS has confirmed that if you used the elevated exemption for large gifts, your estate will not be penalized if the exemption ever decreases in the future.
Common Mistakes to Avoid With Estate and Inheritance Tax
Families make costly errors when dealing with estate and inheritance tax. Many of these mistakes are avoidable with basic knowledge and timely action.
1. Forgetting about state taxes. Many families assume the $15 million federal exemption means they owe nothing. However, if the deceased lived in Oregon, an estate over $1 million could trigger state tax. Always check the state where the person lived — and any state where they owned real property.
2. Missing the portability election. If a married person dies and the surviving spouse does not file Form 706, the deceased spouse’s unused exemption is lost forever. This is true even if the estate owes no tax. Filing for portability could save the surviving spouse’s family up to $6 million in future tax.
3. Undervaluing the estate. The IRS requires fair market value for all assets as of the date of death. Undervaluing real estate, business interests, or collectibles can lead to audits and penalties. Consider getting professional appraisals for high-value items.
4. Not knowing about the Massachusetts or New York cliff. These states do not simply tax the amount above the exemption. They tax the entire estate once it exceeds the threshold. This can turn a modest overage into a massive tax bill. A $2.1 million estate in Massachusetts faces far more tax than you might expect.
5. Ignoring property in other states. If the deceased owned real estate in multiple states, each state may claim the right to tax the property within its borders. This is sometimes called “ancillary probate.” For more on the probate process, see our state-by-state probate guide.
6. Failing to plan for the inheritance tax. In states like Pennsylvania and Nebraska, even children owe inheritance tax. Families who do not plan ahead may find the tax bill reduces the inheritance significantly. A trust may help in some situations, but this requires professional guidance.
The Costs Involved in Estate and Inheritance Tax
Beyond the tax itself, there are costs associated with preparing and filing estate tax returns. These can add up quickly for larger or more complex estates.
| Cost Item | Typical Range | Notes |
|---|---|---|
| CPA or tax preparer for Form 706 | $5,000 – $25,000+ | Depends on estate complexity |
| Estate appraisals (real estate, business, art) | $500 – $10,000+ per asset | Required for fair market value |
| Estate planning attorney | $3,000 – $15,000+ | For trust setup or tax planning |
| IRS penalty for late filing | 5% per month, up to 25% of tax owed | Can be waived for reasonable cause |
| IRS penalty for late payment | 0.5% per month of unpaid tax | Interest also accrues daily |
The cost of professional help may seem high. However, for estates near the exemption threshold in any state, a skilled CPA or attorney can often save far more than they charge. For smaller estates that fall below all tax thresholds, you may not need to file an estate tax return at all. Check whether your state offers a small estate process that simplifies things.
In states with an inheritance tax, the cost is borne by the individual heir. For example, in Pennsylvania, a child inheriting $500,000 would owe $22,500 (4.5%). A sibling inheriting the same amount would owe $60,000 (12%). Planning ahead — including the use of trusts or lifetime gifts — may reduce these costs for some families.
How Estate and Inheritance Tax Differs Across States
The differences between states are dramatic. Two families with identical estates can face vastly different tax bills depending on where the deceased lived. This is one of the most important things to understand about estate and inheritance tax in the United States.
| State | Estate Tax? | Inheritance Tax? | Exemption / Threshold | Top Rate | Tax on $5M Estate (approx.) |
|---|---|---|---|---|---|
| Florida | No | No | N/A | 0% | $0 |
| Texas | No | No | N/A | 0% | $0 |
| Oregon | Yes | No | $1,000,000 | 16% | ~$391,000 |
| Massachusetts | Yes | No | $2,000,000 | 16% | ~$263,000 |
| Illinois | Yes | No | $4,000,000 | 16% | ~$129,600 |
| Maryland | Yes | Yes | $5,000,000 (estate) | 16% | $0 estate tax + possible inheritance tax |
| New York | Yes | No | $7,350,000 | 16% | $0 |
| Pennsylvania | No | Yes | No exemption (except spouse) | 15% | Depends on heir relationship |
| Connecticut | Yes | No | $15,000,000 | 12% | $0 |
As this table shows, a $5 million estate in Oregon faces roughly $391,000 in state estate tax. The same estate in Florida or Texas faces zero. This is why some people relocate to tax-friendly states as part of their estate planning. However, simply changing your address is not enough — states look at where you actually lived, voted, and maintained ties.
For families navigating intestate succession (dying without a will), the tax picture adds another layer of complexity. Without a will, state law determines who inherits — and those heirs may face unexpected estate and inheritance tax obligations depending on their relationship to the deceased.
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How to Handle Estate and Inheritance Tax Without a Lawyer (and When You Need One)
Not every estate needs professional help with taxes. If the estate is well below the federal and state exemption thresholds, and no portability election is needed, you may be able to handle things on your own. The IRS provides instructions for Form 706 and many state revenue departments offer guides for their own estate tax returns.
However, you should strongly consider hiring a licensed attorney or CPA if any of these apply:
You likely need professional help when:
- The estate is near or above the state exemption threshold
- The deceased owned property in multiple states
- The estate includes a business or complex investments
- You need to elect portability for the surviving spouse
- You are dealing with both estate and inheritance tax (Maryland)
- There are disputes among heirs about asset values
- The estate has outstanding debts or liens
For simpler situations — for example, a $500,000 estate in a state with no estate or inheritance tax — the executor may only need to handle the basic probate process. Our state-by-state will guide and document and form guides can walk you through those steps.
If you are unsure whether estate and inheritance tax applies to your situation, your state’s probate court or revenue department can often answer basic questions at no cost. Many state court websites have self-help portals with free forms and instructions.
Strategies That May Reduce Estate and Inheritance Tax
There are several legal strategies that families and planners use to minimize estate and inheritance tax exposure. These are not loopholes — they are built into the tax code. However, each one has trade-offs and requirements.
Annual gifting. Using the $19,000 annual exclusion, you can reduce your estate over time. A couple with three children and six grandchildren could gift $342,000 per year ($19,000 × 9 recipients × 2 donors) without any gift tax consequences. Over 10 years, that removes $3.42 million from the taxable estate.
Portability election. Filing Form 706 after the first spouse’s death — even if no tax is owed — preserves up to $15 million in additional exemption for the surviving spouse. This is free and should almost always be done for married couples.
Irrevocable trusts. Certain trust structures can remove assets from your taxable estate. For example, an irrevocable life insurance trust (ILIT) can keep life insurance proceeds out of the estate entirely. However, you give up control of the assets. A licensed attorney can help determine if a trust makes sense for your family. See our trusts-by-state guide for more information.
Charitable giving. Gifts to qualified charities reduce the taxable estate dollar for dollar. There is no limit on the charitable deduction for estate tax purposes. This can be done through direct bequests, charitable remainder trusts, or donor-advised funds.
State residency planning. For families with significant estates, relocating from a high-tax state to one with no estate tax can save hundreds of thousands of dollars. However, this must be a genuine change of domicile — not just a mailing address change.
What Changed in 2026: The TCJA and the One, Big, Beautiful Bill
Understanding recent changes to estate and inheritance tax law is critical for 2026 planning. The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the federal estate tax exemption. That increase was originally set to expire, or “sunset,” at the end of 2025.
Many families spent years planning for a dramatic drop. The exemption was expected to fall from about $13.99 million in 2025 to roughly $7 million in 2026. However, Congress passed the One, Big, Beautiful Bill, signed on July 4, 2025. This legislation set the 2026 exemption at $15 million per person — even higher than 2025.
Key changes for 2026:
- Federal exemption: $15,000,000 per individual ($30,000,000 for married couples with portability)
- Annual gift exclusion: $19,000 per recipient (up from $18,000 in 2024)
- Non-citizen spouse annual exclusion: $194,000
- Connecticut aligned its state exemption to $15,000,000 to match federal
- Washington froze its exemption at $3,000,000 as of July 1, 2026
For families who made large gifts during the elevated-exemption years (2018–2025), the IRS has confirmed those gifts are protected. Your estate will not be penalized retroactively. This “anti-clawback” rule provides important peace of mind.
What to Do Next
If you are dealing with estate and inheritance tax — whether you are planning ahead or handling an estate right now — here are clear steps to take.
If someone has recently passed away:
- Determine the total value of the estate as of the date of death
- Check whether the estate exceeds the federal exemption ($15 million) or the state exemption (which may be much lower)
- Identify whether the state imposes an inheritance tax and who the heirs are
- If tax may be owed, contact a licensed CPA or estate attorney immediately — the 9-month filing clock is running
- If the deceased was married, consider filing Form 706 for the portability election even if no tax is due
If you are planning ahead:
- Calculate your current estate value, including life insurance, retirement accounts, and real estate
- Check the estate and inheritance tax rules in your state using our estate and inheritance tax directory
- Consider annual gifting to reduce your taxable estate over time
- Discuss portability, trusts, and charitable strategies with a licensed estate planning attorney
- Review your will and beneficiary designations — our wills-by-state guide can help
For families navigating specific situations — like what happens when someone dies without a will, or how to handle a small estate — our scenario guides and comparison articles provide step-by-step help.
Frequently Asked Questions About Estate and Inheritance Tax
What is the difference between estate tax and inheritance tax?
Estate tax is paid by the estate itself before assets are distributed. Inheritance tax is paid by the person who receives the inheritance. The federal government only imposes an estate tax. Six states impose an inheritance tax, and the rate depends on the heir’s relationship to the deceased.
How much can you inherit without paying federal estate tax in 2026?
The federal estate tax exemption for 2026 is $15 million per individual. For married couples using portability, the combined exemption is $30 million. Only the amount above this threshold is taxed, at rates up to 40%.
Which states have an estate or inheritance tax?
Twelve states and DC impose an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and DC. Six states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state with both.
Do I have to pay estate and inheritance tax on money left to me by my spouse?
No. At the federal level, the unlimited marital deduction means spouses can inherit any amount tax-free. At the state level, every state that imposes an inheritance tax also exempts surviving spouses. However, the estate tax exemption for the surviving spouse will matter when that spouse eventually passes away.
What is portability and why does it matter?
Portability allows a surviving spouse to use the deceased spouse’s unused federal estate tax exemption. In 2026, this means up to $30 million can pass tax-free for a married couple. However, portability must be elected on a timely filed Form 706. Not all states offer portability for their state estate tax.
Can I avoid estate and inheritance tax by giving gifts while I am alive?
You can reduce your taxable estate through lifetime gifts. In 2026, you may give up to $19,000 per person per year without any tax consequences. Gifts above this amount reduce your $15 million lifetime exemption. Married couples can give $38,000 per person per year by “splitting” gifts. For large estates, a systematic gifting strategy over many years can significantly reduce the eventual tax bill.
Find Your State’s Exact Rules
Every state handles wills, probate, and estate tax differently. Pick your state to see the exact probate cost, small-estate limit, intestate shares, and tax rules that apply where you live.
Sources & How to Verify
The information on this page is drawn from official government and court sources. Estate, probate, and tax rules change, so always confirm the exact figure with your state’s court, statute, or a licensed attorney.
- IRS — Estate Tax: irs.gov — federal estate-tax rules and exemption
- Find free legal help: lawhelp.org — free and low-cost legal aid in your state
- Cornell Legal Information Institute: law.cornell.edu/wex — plain-English legal definitions
- Your state probate code & court self-help portal: search “[your state] probate code” and “[your state] probate court self-help” for the exact law and forms
Content last reviewed June 2026. If you notice outdated information, please contact us.
Related Guides
- Wills & Probate by State (All 51 Jurisdictions)
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- Documents, Forms & Letters
- Comparison Guides
- Estate Planning Glossary
Informational only — not legal or tax advice. Wills Probate Guide is an independent educational resource, not a law firm, tax advisor, or financial planner, and this page does not provide legal or tax advice. Estate, probate, and tax rules vary by state and change over time, so always verify the exact rule with your state’s probate code, your local probate court’s self-help portal, or a licensed attorney. For urgent matters like an active probate or a tax deadline, contact a licensed attorney in your state right away.