With the signing of the One Big Beautiful Bill Act (OBBBA) in mid-2025, the federal estate tax threshold is making a leap to $15 million per person in 2026. Even better (for wealthy estates), the higher exemption is slated to remain in place permanently — there’s no automatic “sunset” that would bring it back down in a few years. In plain English, a married couple will be able to pass $30 million to their heirs free of federal estate tax starting in 2026.

With such a sky-high bar, you might assume you’ll never have to worry about any estate taxes if your net worth is under eight figures. Indeed, well over 99% of Americans’ estates won’t owe a dime to the IRS under the new rules. (In fact, in 2019, only about 8 out of every 10,000 U.S. estates were taxable at the federal level — that’s a mere 0.08%)

But before you breathe a sigh of relief, check your state tax code. Many states impose their own estate or inheritance taxes (death taxes), and often with much lower exemptions. In other words, you could be off the hook with Uncle Sam, but still owe taxes to your state when you pass on your wealth.

Let’s explore which states assess this tax and how you can plan ahead.

State Estate Taxes: The Other Death Tax

First, what counts toward the estate tax? Common taxable assets include:

• Cash
• Real Estate
• Investments (including stocks and bonds)
• Retirement accounts
• Life insurance owned outside of trust
• Personal property
• Business Interests

Estate tax means that the estate itself pays the tax before anything is passed on to heirs.

If your state assesses this tax, you’ll pay on essentially everything the decedent owned or controlled at death.

Currently, 12 states plus the District of Columbia have their own estate tax separate from the federal tax. And these aren’t just for ultra-wealthy estates over $15 million. Below is a rundown of the states that take a bite out of estates, along with their approximate exemption amounts and top tax rates.

Connecticut

• Exemption: $13.9 million
• Top Tax Rate: 12%

Hawaii

• Exemption: $5.49 million
• Top Tax Rate: 20%

Illinois

• Exemption: $4 million
• Top Tax Rate: 16%

Maine

• Exemption: $7 million
• Top Tax Rate: 12%

Maryland

• Exemption: $5 million
• Top Tax Rate: 16% (also imposes a separate inheritance tax)

Massachusetts

• Exemption: $2 million
• Top Tax Rate: 16%

Minnesota

• Exemption: $3 million
• Top Tax Rate: 16%

New York

• Exemption: $7.16 million
• Top Tax Rate: 16%

Oregon

• Exemption: $1 million
• Top Tax Rate: 16%

Rhode Island

• Exemption: $1.8 million
• Top Tax Rate: 16%

Vermont

• Exemption: $5 million
• Top Tax Rate: 16%

Washington (state)

• Exemption: $2.193 million
• Top Tax Rate: 20%

Washington, D.C.

• Exemption: $4.873 million
• Top Tax Rate: 16%

As you can see, a “taxable estate” at the state level can be substantially less than the $15 million federal bar. In Oregon, for example, the estate tax exemption is only $1 million — often creating a bill well into six figures for families with nothing more than a lush paid-off home in, say, Bend. New York adds a harsher twist: Exceed its roughly $7.16 million exclusion by just 5%, and the state’s notorious “cliff” rule kicks in, making the entire estate — not just the excess — taxable. Even worse, most states disallow estate tax-exemption portability between spouses, creating even harsher thresholds.

Inheritance Taxes: Another Layer to Watch

Even if you sidestep state estate taxes, your heirs may still face another levy altogether: inheritance tax. Unlike estate tax, which the estate pays before distributing assets, inheritance tax is paid by individual beneficiaries on what they receive, creating a second layer of potential cost.

Five states currently have inheritance taxes: Pennsylvania, New Jersey, Nebraska, Kentucky, and Maryland. Inheritance tax rates depend on your relationship to the deceased. Typically, immediate family members (spouse, children) are exempt or pay the lowest rates, while more distant relatives or unrelated heirs pay higher rates.

For example, Pennsylvania taxes inheritances to children at 4.5%, to siblings at 12%, and to other heirs at 15% (spouses are exempt in full). New Jersey taxes inheritances to siblings, nieces, and nephews at rates of 11%–16%, after a small exemption (spouses and kids are exempt in NJ). As mentioned, Maryland stands alone in imposing both an estate tax and a 10% inheritance tax on anyone who is not a close family member.

Problem With “Death Taxes”?

Here’s the thing: Whereas income taxes and payroll taxes are partially or wholly withheld from your salary, and capital gains taxes are usually accompanied by some kind of cash inflow, estate and inheritance taxes demand fast cash on oftentimes illiquid assets. That’s because most estates are tied up in real estate, businesses, or retirement plans. With taxes typically due within months, heirs may be forced to sell or liquidate prized assets, such as a family home or business, or borrow at high rates simply to cover the bill.

But with careful planning, families can significantly reduce or even eliminate state-level estate and inheritance taxes. Helpful strategies may include lifetime gifting to move appreciating assets out of the estate, trust planning (such as a dynasty trust, irrevocable life insurance trust, or qualified personal residence trust) to strategically mitigate the tax due, making qualified charitable distributions, or even moving to a no-death tax, low-(or no-) income tax state like Florida, Texas, Arizona, or North Carolina.

At Felton & Peel, our goal is to help families notice the real-world tax traps that matter most, even if they don’t always make headlines. In some cases, improper estate planning at the state level can cause severe financial harm during already challenging times. We’re here to help — and your first consultation is on us.