2026 State Estate and Inheritance Taxes: What You Need to Know

When it’s time to pass assets down to the next generation, estate and inheritance taxes can have a big impact on how much your heirs ultimately receive. While federal estate tax rules usually get most of the attention, state estate and inheritance tax laws can be just as important — especially for high-net-worth families in states with lower exemptions.

In this guide, we cover how state and federal rules work together in 2026, which states currently impose estate and inheritance taxes, and several strategies that may help reduce your family’s overall tax burden. You’ll also see how these rules play out in a real-world example and when it makes sense to revisit your estate plan with an advisor.

Estate Tax vs. Inheritance Tax

When you start looking at state-level “death taxes,” you’ll see two different systems: estate taxes and inheritance taxes.

• Estate tax is a tax on the total value of a taxable estate that’s paid out of the estate before assets are distributed to heirs.
• Inheritance tax is a tax on what each beneficiary actually receives and is paid by the heir rather than by the estate.

Most U.S. states no longer impose either type of tax, but a small number still do — and their exemption thresholds are often well below the federal level. For families with larger estates, these state‑level rules can create material tax liability, even if they’re nowhere near the federal estate tax exemption.

If you or loved ones are non‑U.S. persons with U.S.‑situs assets, Don’t Fall Victim to This Devastating U.S. Estate Tax Trap can help you understand how estate tax may apply in these types of situations.

Federal Estate Tax in 2026

In 2026, the federal estate and gift tax exemption is $15 million per individual ($30 million for married couples). This means an individual’s estate won’t be subject to federal estate taxes this year if the total taxable estate, plus any taxable lifetime gifts, totals less than $15 million. If an estate exceeds the exemption limit, it may owe federal estate taxes up to 40% on the excess amount.

Due to the One Big Beautiful Bill Act passed in July 2025, this higher exemption is permanent and will be indexed annually for inflation starting in 2027. The legislation eliminated the “sunset” provision that was originally set to reduce the federal exemption to roughly $7 million in 2026. For many families, this change eases pressure around federal estate taxes — but state‑level estate and inheritance taxes remain very much in play.

To better understand the broader law behind these changes, you can explore The One Big Beautiful Bill Act.

Understanding State-Specific Tax Exemptions

As of 2026, 12 states and the District of Columbia assess estate taxes. Each state sets its own exemption amount and tax rates, which can be significantly lower than the federal exemption.

States with estate taxes in 2026

*Washington’s threshold is $3.076 million for deaths through June 30, 2026, and $3.0 million for deaths on or after July 1, 2026; the top rate is 20%.

In addition to exemption thresholds, each jurisdiction has its own rules for deductions, tax brackets and how it defines a taxable estate. Two estates of the same size can face very different outcomes, depending on where the decedent lived, where property is located and how assets are titled.

States With Inheritance Taxes in 2026

As for states that impose an inheritance tax, there are currently five. Inheritance exemption amounts and tax rates vary by state and often depend on the beneficiary’s relationship to the decedent.

State	Inheritance Tax Exemption (By Relationship)	Inheritance Tax Rate (By Relationship)
Kentucky	Approximately $500 to $1,000, depending on relationship	4%-16% for more distant beneficiaries
Maryland	About $1,000 for certain heirs	10% for heirs other than spouse, descendants and certain close relatives
Nebraska	Roughly $100,000, $40,000 or $25,000, depending on relationship	1%, 11% or 15% for most non-spouse beneficiaries
New Jersey	Around $25,000 for certain classes of beneficiaries	11%-16% for many non-linear heirs
Pennsylvania	No blanket exemption; rates vary by relationship	0% for surviving spouses, minor children and some parents, 4.5% for adult children, 12% for siblings and 15% for others

Because inheritance tax is calculated based on what each beneficiary receives, careful allocation of bequests — and awareness of family structure — can create meaningful differences in total taxes paid.

How State and Federal Rules Work Together

Federal estate tax laws apply to the estates of deceased U.S. citizens and residents — and in some cases to deceased non-residents who weren’t U.S. citizens but owned U.S.-situs property. State-level estate and inheritance taxes primarily apply to residents of states where they’re imposed, as well as non-residents who owned property or other taxable assets in those states.

At the federal level, estate taxes only apply to estates that exceed a specific exemption amount — $15 million in 2026 — and there’s no federal inheritance tax. At the state level, however, 12 states have estate taxes and five have inheritance taxes, each with their own exemption thresholds, tax rates and definitions of a taxable estate. If you live (or own property) in one of these states, your estate may face state-level taxes on top of any federal estate tax liability.

The good news is that state estate and inheritance taxes can often be deducted when calculating your federal taxable estate, which can help reduce your federal estate tax bill. Income tax and capital gains tax implications — for example, how a step‑up in basis applies to inherited assets — also play a role in determining your family’s overall tax liability.

If you’re considering locking in today’s elevated exemption amounts, Use It or (Likely) Lose It: Estate Tax Exemption Planning Strategies is a helpful resource on proactive strategies.

Example: How state and federal rules interact

Consider the following simplified example.

Shelly lived in Vermont and had a gross estate of $35 million when she died in early 2026. After claiming $5 million in allowable state deductions and applying Vermont’s $5 million estate tax exemption, $25 million of her estate was subject to Vermont estate tax. At a 16% tax rate, her estate owed approximately $4 million in Vermont estate tax.

The $4 million Vermont estate tax was deductible when calculating her federal taxable estate. If we add that $4 million to $5 million in allowable federal deductions and then apply the $15 million federal exemption, $11 million would be subject to federal estate tax. At a 40% tax rate, her estate owed approximately $4.4 million in federal estate tax, or a combined estate tax bill of $8.8 million. The combined impact of state and federal rules materially reduced what Shelly’s heirs received.

Now suppose Shelly had lived in Florida, which doesn’t impose a state estate or inheritance tax, and she didn’t own property in any other states. In this case, her estate would only be responsible for federal estate taxes on $15 million (her gross estate less deductions and the federal exemption), resulting in total federal estate tax of approximately $6 million. No separate state estate or inheritance tax would apply.

Compliance Requirements for Inheritance Taxes

For families in states that impose inheritance taxes, compliance isn’t just about paying the bill. It’s about understanding who’s responsible, what forms are required and how deadlines differ from the federal timeframe.

Key compliance considerations include:

• Whether a separate state inheritance tax return is required and who must file it
• What documentation is needed, including appraisals and account statements
• How state filing deadlines and extension rules differ from federal estate tax deadlines
• What penalties and interest may apply for late filing, underpayment or non‑compliance

An experienced estate planning advisor can coordinate with a personal representative, an accountant and an attorney to help make sure each state’s requirements are met on time and tax payments are properly documented so that any state taxes paid can be deducted when calculating the federal taxable estate.

Planning for Future Inheritance Tax Changes

While this article focuses on 2026 rules, estate and inheritance taxes are inherently political and subject to change. Future legislation could raise or lower exemptions, modify tax brackets or even introduce new taxes at the state level.

To plan for future changes, many families:

• Build flexibility into their estate plan using revocable trusts and thoughtfully drafted formula clauses
• Consider lifetime wealth transfer strategies that “lock in” today’s favorable rules
• Schedule periodic plan reviews when tax law changes or major life events occur

Because tax law changes can also interact with income taxes and capital gains taxes, it’s important to look beyond estate tax rates to consider the full picture of your family’s tax liability over time.

For larger or more complex estates, Estate Planning for Wealthy Families: How to Effectively Manage a Large Estate offers a broader planning perspective.

Legal Implications of State Tax Regulations

State tax regulations don’t exist in a vacuum. They’re woven into a broader legal framework that includes probate procedures, community property rules, marital property rights and the treatment of non‑resident or cross‑border families.

Key legal implications include:

• Multi‑state probate and filings, which may be required if you own property in more than one jurisdiction
• Cross‑border issues for mixed‑nationality couples or U.S. citizens living abroad
• Nonresident alien exposure to U.S. estate tax on U.S.‑situs assets
• Trust siting and governing law, which can influence both income and estate tax outcomes

For global families, our Guide to International Estate Planning for Cross‑Border Families is a helpful resource on how different tax regimes intersect with U.S. rules.

Wealth Transfer Strategies and Estate Planning

Worried that your estate or heirs will face burdensome state taxes? Here are four strategies that an experienced wealth manager can help you put into place.

1. Lifetime gifts and irrevocable trusts

Gifts and irrevocable trusts are helpful tools for reducing your taxable estate and passing assets to your desired recipients.

• Annual gifts – Annual gifts under the annual gift exclusion (for example, $19,000 per person in 2026) can be made to an unlimited number of recipients each year, shifting wealth out of your estate without using your lifetime exemption.
• Lifetime gifts – Gifts above the annual exclusion must be reported and count against your lifetime exemption but can move larger assets — and their future appreciation — out of your taxable estate.

Irrevocable trusts, including dynasty trusts and other long-term structures, allow you to transfer ownership of assets to a trust and designate beneficiaries who will receive them in the future. Doing so can remove assets from your taxable estate, provide creditor protection and help manage how and when heirs receive wealth.

For more details on using dynasty trusts and similar structures, see How Dynasty Trusts Help Preserve Wealth.

2. Charitable giving to reduce your state-taxable estate

Charitable giving can align with your values and your tax planning goals. Outright charitable bequests in your will or trust can reduce the size of your taxable estate while supporting causes you care about. Also, donating appreciated assets during your lifetime can help both you and the recipient charity avoid capital gains tax on embedded appreciation while removing the assets from your estate.

Donor-advised funds (DAFs) allow you to make contributions now — potentially generating an income tax deduction — while recommending grants to charities over time. More advanced charitable trusts, such as a charitable remainder trusts (CRTs) and charitable lead trusts (CLTs), can blend charitable and family goals in flexible ways.

3. Liquidity planning for heirs

If your estate is likely to owe estate taxes or your heirs may owe inheritance taxes, it’s critical to consider whether there will be enough liquidity to pay those bills without forced sales of illiquid assets.

Tools like the following can help provide heirs with the liquidity they need while still respecting your long-term goals:

• Earmarked cash liquid investment pools
• Life insurance owned by an irrevocable life insurance trust (ILIT)
• Thoughtful business succession planning

4. Asset titling and beneficiary designations

Coordinating asset titling and beneficiary designations with state estate and inheritance tax rules helps ensure that ownership during life, transfer at death and state taxing authority all line up as intended.

The process typically starts with a complete asset map, including type, location, titling, beneficiary designations and estimated value. From there, you and your advisor can retitle assets into trusts where appropriate, update beneficiaries and consider whether moving certain assets out of high-tax states makes sense for your situation.

Optimizing Gift Tax Exemptions and Considerations

Gift tax rules often work hand in hand with estate and inheritance tax planning.

Key considerations include:

• Making full use of annual exclusion gifts
• Coordinating lifetime gifts with your state’s estate or inheritance tax thresholds
• Understanding valuation discounts for closely held business interests when appropriate
• Balancing income tax and estate tax trade‑offs, including a step‑up in basis at death

These decisions are especially important for high‑net‑worth individuals who are already near state or federal thresholds or expect significant future growth in their estates.

FAQs About State Estate and Inheritance Taxes

Which states have estate or inheritance taxes in 2026?

Twelve states plus Washington, D.C., currently impose an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Five states currently impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

What’s the difference between a state estate tax and an inheritance tax?

A state estate tax is imposed on the transfer of a deceased person’s property, assets and wealth before it’s distributed to heirs. It applies to the taxable estate (total assets minus debts, expenses and exemptions) and is paid by the estate itself. An inheritance tax, by contrast, is imposed on the recipient who inherits money or property, with rates often depending on the beneficiary’s relationship to the decedent.

Can my estate owe state tax in 2026 even if I’m below the federal estate tax exemption?

Yes. Your estate can owe state-level estate taxes in 2026 even if it falls below the $15 million federal estate and gift tax exemption. State exemption thresholds are often much lower, and in some states estate taxes can apply once an estate exceeds a few million dollars.

Do I owe state estate or inheritance tax if I live in a no-tax state but own property in a tax state?

It’s possible. Your home state may not tax your estate, but a state where you own property can impose estate or inheritance tax on in-state property. This adds administrative complexity, sometimes requires separate state filings, and can potentially end up in taxes due. A wealth planner can help you explore strategies to help minimize your out-of-state tax exposure.

What planning strategies can help reduce 2026 state estate and inheritance taxes for my family?

Common strategies include lifetime gifting, charitable giving, using irrevocable trusts (such as dynasty trusts), holding life insurance in an ILIT to provide liquidity, and carefully coordinating asset titling and beneficiary designations. For larger or more complex estates, especially those with multi‑state or international elements, working with a team that includes estate planning attorneys, tax professionals and wealth managers can be particularly valuable.

When to Revisit Your Estate Plan With an Advisor

Even if you already have an estate plan, it shouldn’t be treated as a “set it and forget it” document. Reviews are warranted for a variety of reasons, such as:

• Major life events, such as marriage or divorce, the birth of a child or grandchild, or the loss of a loved one
• Significant financial changes, like selling a business, acquiring real estate or receiving an inheritance
• Relocation or multi-state ownership that triggers different state tax rates
• Legal updates, including changes in estate, gift and inheritance tax laws at both the federal and state levels

It helps to partner with an experienced estate planning advisor that can perform regular reviews, both annually and as laws or circumstances change, to keep your plan current. Creative Planning’s team offers integrated support across estate, tax and investment planning, including specialized guidance on wealth transfer and inheritance planning for high‑net‑worth and ultra‑high‑net‑worth families.

We’re Here to Help

If you’re concerned about the impact state-level estate and inheritance taxes may have on your heirs, now’s the time to start strategizing. Creative Planning’s team can help you build a cohesive plan that accounts for federal estate tax rules, state-level tax considerations, income and capital gains taxes, and your broader wealth transfer goals.

Our experienced estate planning advisors specialize in wealth transfer and inheritance planning for high-net-worth and ultra-high-net-worth families. We can help you evaluate your current exposure, explore state‑specific planning opportunities and coordinate with your tax and legal advisors to implement a plan that reflects your values. Schedule a conversation today to explore your options.