State Estate Tax Field Guide 2026: The 12 States + DC That Still Tax Estates, the 6 Inheritance-Tax States, and How the $15M Federal OBBBA Exemption Interacts With State Rules

Federal estate tax is a single system administered by the Internal Revenue Service under Chapter 11 of the Internal Revenue Code. A resident of Wyoming who dies with a $12 million taxable estate and a resident of Manhattan who dies with the same $12 million taxable estate face identical federal treatment — zero federal estate tax, because both estates sit under the $15 million per-person exemption that the One Big Beautiful Bill Act of 2025 (Pub. L. 119-21) made permanent effective January 1, 2026.^[1] State estate tax is a fundamentally different animal. The Wyoming resident pays zero state estate tax. The Manhattan resident owes New York somewhere between roughly $180,000 and $1.4 million on the same $12 million estate, depending on whether the estate is under or over New York's cliff.^[2]

The stakes are large and asymmetric. For the roughly 99.8 percent of Americans whose net worth is below the federal $15 million exemption, federal estate tax is not the binding constraint — state estate tax is. Massachusetts and Oregon both impose estate tax at $1 million. New York imposes it at $7.35 million with a hard cliff that can vaporize the exemption entirely. Pennsylvania and New Jersey impose inheritance tax that hits siblings, nieces, nephews, and unrelated beneficiaries at 12 to 16 percent. Maryland stacks estate tax and inheritance tax on the same dollars. A well-drafted 2018 estate plan that references only the federal exemption is likely under-modeling state exposure by a factor of two to five for anyone with more than $2 million in assets living in a state estate tax jurisdiction.^[3]

This guide is the 2026 field reference. It walks the federal OBBBA baseline, the 12 estate-tax states + DC with 2026 thresholds and rate schedules, the 5 active inheritance-tax states, the Massachusetts and New York cliff mechanics, the Maryland double-tax problem, the domicile mechanics for real property vs intangible personal property, three worked case studies at $3 million / $8 million / $22 million estates, six common mistakes, and an 8-item pre-death planning checklist. Model the projections as you read using the estate tax calculator for the federal + state combined bill, the net worth calculator and the retirement calculator to project taxable estate to death, and the income tax calculator for state-tax overlay work.

1. The 2026 federal baseline — OBBBA made the $15M exemption permanent

Before OBBBA the federal estate and gift tax exemption was scheduled to sunset on January 1, 2026, reverting from roughly $14 million (the 2025 inflation-adjusted level) to roughly $7 million — the pre-2018 Tax Cuts and Jobs Act baseline as inflation-adjusted forward. This was the single most-anticipated estate planning event of the decade. It never happened. The One Big Beautiful Bill Act of 2025, signed by the President on July 4, 2025, amended IRC §2010(c)(3) to set the basic exclusion amount at $15 million per individual for decedents dying and gifts made after December 31, 2025, and to eliminate the sunset provision entirely.^[4] The $15 million figure is indexed annually for inflation using the Chained CPI-U under IRC §1(f)(3).

For 2026 specifically, the $15 million per-person exemption creates a $30 million per-couple shelter using portability. Portability of the Deceased Spousal Unused Exclusion (DSUE) under IRC §2010(c)(4)-(5) allows the surviving spouse to add the deceased spouse's unused exemption to their own — but only if the executor makes a timely portability election on Form 706 within 9 months of the first spouse's death (extendable to 15 months with Form 4768). For estates below the filing threshold, Rev. Proc. 2022-32 provides a simplified extension procedure allowing the portability election up to 5 years after death provided no Form 706 was otherwise required.^[5]

The unified credit under §2010 is a single pool covering both lifetime gifts under IRC §2501 and the taxable estate under IRC §2001. A donor who uses $3 million of lifetime exemption on gifts to grandchildren reduces the remaining death-time exemption from $15 million to $12 million. Because gifts also trigger the potential grandchildren generation-skipping transfer tax under IRC §2601, careful coordination of the gift, estate, and GST exemptions is a full-time practice specialty. The federal marginal rate above the exemption is 40 percent under IRC §2001(c) — flat, no bracket structure — so the after-tax cost of exceeding the exemption is 40 cents on the dollar at the federal level plus the state layer.

2. The 12 states + DC that impose an estate tax in 2026

Twelve states and the District of Columbia impose a state estate tax in 2026. Every one of these jurisdictions decoupled from the federal exemption years or decades ago, meaning the OBBBA increase does not flow through to state rules. State exemption thresholds range from $1 million (Massachusetts and Oregon) to $15 million (Connecticut), and top marginal state estate tax rates range from 12 percent (Illinois and Rhode Island low ends) to 20 percent (Washington and Hawaii top brackets).

Washington footnote (*): under Senate Bill 5813 (2025) Washington imposed a temporary 10–35 percent graduated rate schedule for decedents dying between January 1 and June 30, 2026, with a top marginal rate of 35 percent on Washington taxable estates above $9 million. Senate Bill 6347 restored the pre-2025 10–20 percent graduated schedule for decedents dying on or after July 1, 2026, capping the top marginal rate back at 20 percent. Model against the correct schedule based on the actual date of death — the CalcLeap estate tax calculator now routes between both regimes via a Washington date-of-death input that appears when Washington is selected as the state of domicile. The Washington Department of Revenue posts both schedules on its estate tax tables page.

Connecticut is the closest to the federal exemption because it phased in a match to the federal level over the past several years and now sits at $15 million for 2026 with a 12 percent top rate.^[6] This makes Connecticut effectively a non-issue for anyone under $15 million — an outcome unique among the 12 estate-tax states. The other 12 jurisdictions all impose meaningful tax well below the federal threshold. Massachusetts, Oregon, Rhode Island, Washington, Minnesota, and Illinois all impose state estate tax at exemption levels five to fifteen times lower than the federal $15 million.

3. Massachusetts and Oregon — the two $1M–$2M exemption states

Massachusetts and Oregon are the two lowest-exemption states in the country. Both impose estate tax at exemption thresholds that would have been the federal exemption in 2003 and haven't been meaningfully increased since.

Massachusetts. The Massachusetts estate tax exemption is $2 million for 2026 following the reform under Chapter 50 of the Acts of 2023, which doubled the pre-reform $1 million exemption and eliminated the "cliff" behavior where estates just above the threshold were taxed on the entire estate value.^[7] Under the current graduated schedule an estate of $4 million pays roughly $184,000 in Massachusetts estate tax; a $6 million estate pays roughly $400,000; a $10 million estate pays roughly $829,000. The Massachusetts rate schedule is derived from the pre-2001 federal state death tax credit table under IRC §2011 (as in effect before the Economic Growth and Tax Relief Reconciliation Act of 2001 phased it out), and runs from 0.8 percent on the first bracket above $1.04 million to 16 percent on estates above $10.04 million taxable value. Massachusetts imposes tax on real property and tangible personal property located in Massachusetts even for nonresident decedents.

Oregon. Oregon's estate tax exemption remains at $1 million with rates from 10 percent to 16 percent. Oregon's exemption has not been increased since 2006. An Oregon resident with a $3 million estate pays roughly $221,600 in Oregon estate tax under the Oregon Department of Revenue's rate schedule. Like Massachusetts, Oregon taxes only the amount above the exemption (post-2005 legislative fix — before that, the entire estate was taxed once the threshold was crossed). Oregon is now the second-lowest exemption in the country and one of the two most punishing states for mid-size estates.^[8]

4. The New York 5% cliff — the harshest exemption structure in the country

New York's estate tax exemption is $7.35 million for decedents dying in 2026, indexed annually.^[2] The number itself is not extreme — it's near the middle of the pack. What makes New York uniquely punishing is the 5 percent cliff mechanic under New York Tax Law §952(c). If the taxable estate exceeds the exemption by more than 5 percent (roughly $7.7175 million for 2026), the estate loses the entire exemption and pays estate tax on the full taxable estate at rates ranging from 3.06 percent to 16 percent.

The cliff creates a "canyon" between two adjacent estates:

• Estate of $7.35 million: zero New York estate tax
• Estate of $7.7 million (100.6 percent of exemption): tax on the roughly $350,000 excess only, using the graduated New York schedule — roughly $28,600
• Estate of $7.75 million (105.4 percent of exemption): OVER the cliff — tax on the entire $7.75 million, at graduated rates from the first dollar — roughly $658,000

The extra $50,000 of estate value triggers an extra $629,000 of New York estate tax. This "cliff tax" is the single most surprising outcome in state estate tax planning and is the specific mechanic that makes New York domicile so consequential for high-net-worth taxpayers.^[9]

The Santa Clause charitable bequest fix. A common tool to bring an estate back under the cliff is a testamentary charitable bequest. Under IRC §2055 (charitable deduction) and NY Tax Law §954, a bequest to a qualified charity reduces the taxable estate dollar for dollar for both federal and New York purposes. An estate of $8 million with a $500,000 charitable bequest is at $7.5 million taxable — still over the exemption but under the cliff — paying New York tax only on the $150,000 excess ($9,200 or so). Without the charitable bequest, the same $8 million estate would pay tax on the full $8 million (approximately $685,000 or so). The $500,000 charitable bequest is arguably "free" in that it converts $675,000 of state tax that would go to Albany into $500,000 going to a charity of the family's choice.

5. The five active inheritance-tax states — Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania

Inheritance tax is imposed on the beneficiary, not the estate. Six states have inheritance tax in their code, but Iowa's phase-out is complete for deaths after December 31, 2024, leaving five active jurisdictions: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.^[10] Every one of the active states uses a class-based schedule where the rate depends on the beneficiary's relationship to the decedent.

Pennsylvania is the most-recited inheritance-tax structure because its rates are flat within class and easy to remember: 0 percent for spouses, 4.5 percent for children and other lineal descendants, 12 percent for siblings, 15 percent for everyone else.^[11] Pennsylvania imposes the tax on transfers to Pennsylvania beneficiaries and on transfers of real property located in Pennsylvania regardless of the beneficiary's state of residence. A 5 percent discount applies to inheritance tax paid within three months of death under 72 P.S. §9143. Life insurance proceeds paid to a named beneficiary are exempt under 72 P.S. §9111(d), which makes life insurance a particularly powerful Pennsylvania planning tool for non-lineal beneficiaries.

New Jersey uses a class system with New Jersey-specific rules. Class A (spouse, children, parents, grandchildren) is fully exempt. Class C (siblings, sons-in-law, daughters-in-law) is exempt on the first $25,000 and taxed at 11–16 percent above. Class D (all other beneficiaries) is taxed at 15–16 percent with only a $500 exemption.^[12] New Jersey eliminated its estate tax effective January 1, 2018, but retained the inheritance tax, making it the only "estate-tax-repeal-but-inheritance-tax-retain" state in the country. Nieces, nephews, cousins, and unrelated beneficiaries are the group hit hardest by New Jersey — a bequest of $100,000 to a niece is subject to roughly $14,900 of New Jersey inheritance tax.

Maryland is the only jurisdiction that stacks both estate tax and inheritance tax on the same dollars. Maryland estate tax has a $5 million exemption with rates from 0.8 percent to 16 percent. Maryland inheritance tax applies to non-lineal beneficiaries at a flat 10 percent — spouses, parents, children, grandparents, siblings, sons-in-law, and daughters-in-law are exempt, but everyone else is taxed at 10 percent.^[13] Maryland estate tax paid by the estate is deductible in computing the Maryland taxable estate itself under Md. Code, Tax-Gen §7-309, but the Maryland estate tax is NOT deductible against Maryland inheritance tax paid by the beneficiary. Both taxes can hit the same dollars — a bequest of $500,000 to a niece where the decedent's estate was $6 million might see the estate pay approximately $16,000 of Maryland estate tax on the $6 million, and the niece pay $50,000 of Maryland inheritance tax on her $500,000 share.

Kentucky and Nebraska use similar class systems but with a lineal-descendant exemption that puts children, grandchildren, and (in the 2023 Nebraska reform) siblings in the fully-exempt category. Kentucky exempts Class A (spouse, parents, children, siblings, grandchildren) entirely.^[14] Nebraska's LB 310 (2022) exempted immediate family entirely for deaths on or after January 1, 2023, restricting the inheritance tax to more distant relatives at 1 percent above $40,000 and unrelated persons at 15 percent above $25,000.^[15]

6. Domicile mechanics — real property vs intangible personal property

Every state estate tax and inheritance tax jurisdiction taxes two categories of property differently:

• Intangible personal property (securities in brokerage accounts, bank deposits, retirement accounts, closely-held business interests held indirectly through pass-through entities, life insurance proceeds). Taxed by the state of the decedent's domicile at death. Nothing else matters — a Florida-domiciled decedent with a $10 million brokerage account custodied at Fidelity in Massachusetts owes no Massachusetts estate tax on the securities.
• Real property and tangible personal property located within a state. Taxed by the state where the property is physically situated, regardless of the decedent's domicile. A Florida-domiciled decedent with a $3 million vacation home in Nantucket owes Massachusetts estate tax on the vacation home. A New York-domiciled decedent with a $5 million ranch in Colorado owes zero Colorado estate tax (Colorado does not have one), but pays New York estate tax on the ranch as part of the New York taxable estate under a credit-for-tax-elsewhere mechanic if Colorado imposed one.

This distinction drives the standard estate planning conversion: transfer the Massachusetts vacation home to a Massachusetts-formed LLC owned by a Florida-domiciled revocable trust. At death, the decedent owns intangible personal property (LLC membership interests) held by a Florida trust — Massachusetts has no jurisdiction over the LLC interests under state-of-domicile principles.^[16] This works cleanly for real property in most estate-tax states, with jurisdiction-specific technicalities in New York (which has aggressively challenged the LLC-conversion approach) and Massachusetts (which has ongoing litigation on the character-conversion doctrine).

The 183-day rule that applies for state income tax residency is a different test than domicile for estate tax purposes. Estate tax domicile requires legal domicile at death — the place the decedent intended to return to whenever absent. Establishing domicile requires the same evidence set as for income tax residence but with additional weight given to circumstances at the moment of death. A retiree who spent six months in Florida and six months in New York during their last three years of life will face intense scrutiny by the New York Department of Taxation and Finance if the estate claims Florida domicile. New York publishes TB-IT-690 Permanent Place of Abode guidance and audits high-value decedent estates that claim non-New York domicile after having spent significant time in the state.^[17]

7. Three worked case studies — $3M, $8M, and $22M net estates

Case 1: Margaret, age 82, Massachusetts, $3M net estate

Margaret is a widowed retiree in Newton, MA. Her estate at death consists of: a $900,000 home, a $1.6 million rollover IRA left by her late husband, $400,000 in a joint brokerage account with her adult daughter (right of survivorship, so half — $200,000 — is included in Margaret's estate under IRC §2040), $100,000 in checking and savings. Gross estate: approximately $2.8 million. Deductible expenses (funeral, legal, small charitable bequest of $50,000): approximately $80,000. Massachusetts taxable estate: $2.72 million.

Federal estate tax: zero ($2.72 million is well under the $15 million federal exemption after portability from her husband). Massachusetts estate tax: on the $2.72 million taxable estate at the graduated Massachusetts schedule, approximately $118,000. Massachusetts's low $2 million exemption catches this middle-class retiree who has no federal exposure at all.

Planning fix: Margaret's estate planning attorney recommends an irrevocable life insurance trust (ILIT) established during Margaret's lifetime to remove any life insurance proceeds from her estate, plus a lifetime charitable annuity converting $400,000 of her IRA to a Charitable Gift Annuity that pays her income for life, deducts the charitable portion, and removes the corpus from her taxable estate. Combined effect: reduce Massachusetts taxable estate by roughly $500,000, saving approximately $56,000 of Massachusetts estate tax.

Case 2: David and Rachel, both 68, New York, $8M net combined estate

David and Rachel are a married couple in Westchester County. Combined net worth: $8 million — a $2.5 million home, $4 million in retirement accounts, $1 million in a taxable brokerage account, $500,000 in a family LLC holding a rental property, no life insurance. Both are 68 and in good health, expected to live another 15-20 years.

At first-spouse-to-die (assume David dies first): federal estate tax zero (under $15 million); New York estate tax on David's $4 million half (assuming a 50/50 division of the marital estate) — under the $7.35 million exemption, so zero. Rachel inherits David's assets. Portability federal — Rachel's federal exemption is now $30 million combined.

At second death (Rachel dies 10 years later, estate has grown to $10.5 million): federal estate tax still zero (under $30 million with portability); New York estate tax on Rachel's now-$10.5 million estate — OVER the cliff because $10.5 million is far more than 105 percent of the $7.35 million exemption. New York taxes the entire $10.5 million at graduated rates from the first dollar, producing approximately $1.24 million of New York estate tax.

Planning fix: Create a credit shelter (bypass) trust in David's will funded up to the New York exemption at his death, holding $7.35 million for Rachel's lifetime benefit. Assets in the bypass trust grow outside Rachel's taxable estate. At Rachel's death 10 years later, only her personal estate (roughly $3-4 million after the split) is subject to New York estate tax — well under the cliff. Estimated New York estate tax at Rachel's death: approximately $100,000 instead of $1.24 million. Bypass trust saves the family roughly $1.14 million.

Case 3: Marcus, age 76, considering NYC → Florida relocation, $22M net estate

Marcus is a New York City resident with a $22 million net worth: $6 million Manhattan condo, $12 million diversified equity portfolio, $2 million IRA, $2 million private-equity fund interests held through pass-through vehicles. His wife predeceased him three years ago; her federal DSUE is $14 million (fully portable to Marcus, giving him $29 million federal exemption).

Federal estate tax at death: zero ($22 million under $29 million portable exemption). New York estate tax at NYC domicile: on $22 million far over the 5 percent cliff, the entire $22 million is taxed at graduated New York rates producing approximately $2.9 million of New York estate tax.

If Marcus establishes clean Florida domicile 3 years before death: New York estate tax on intangibles falls to zero. But the $6 million Manhattan condo is New York-situs real property — still subject to New York estate tax on its full value, roughly $850,000. Selling the condo before death (or transferring it to a Florida-formed LLC via a Florida trust, with the caveat that New York has challenged this approach on litigation grounds and results are jurisdiction-specific) can further reduce the New York exposure.

Financial outcome of Florida relocation: New York estate tax reduced from $2.9 million to $850,000 (retaining the condo) or roughly $250,000 (selling the condo and converting to intangibles). Net family savings: $2.05 to $2.65 million. This is the largest estate tax planning play available to New York-domiciled high-net-worth taxpayers.

8. Six common state estate tax mistakes

1. Planning to the federal $15M exemption when your state exemption is $1M–$5M. Massachusetts, Oregon, Illinois, Minnesota, Rhode Island, and Washington all impose estate tax at exemptions below $5 million. Federal exemption is not the binding constraint for most estate-tax-state residents.
2. Ignoring the New York 5 percent cliff. Failing to structure charitable bequests, disclaimers, or bypass trust funding around the cliff can trigger 8-figure state estate tax liability on estates just above the exemption.
3. Failing to establish clear domicile before death. A retiree who splits time between two states without clearly abandoning the higher-tax state's domicile will face aggressive audit by the higher-tax state's department of revenue. New York, Massachusetts, California (though CA has no estate tax), and Illinois are the four states most aggressive on post-death domicile challenges.
4. Owning life insurance on your own life. Life insurance proceeds paid to a beneficiary are includible in the taxable estate under IRC §2042 if the insured had "incidents of ownership" at death. An irrevocable life insurance trust (ILIT) established at least 3 years before death removes the proceeds from the taxable estate for both federal and every state estate tax purpose.
5. Underestimating retirement account inclusion. 401(k) and IRA balances are includible in the taxable estate at their full pre-tax value under IRC §2033. A $2 million Traditional IRA is a $2 million estate inclusion, even though the beneficiary will pay income tax on distributions — the estate tax is on the pre-income-tax amount. Roth accounts have the same full-value inclusion mechanic but with no income tax offset.
6. Neglecting state real property exposure after moving. A Florida-domiciled decedent who kept the New York vacation home is exposed to New York estate tax on the vacation home's full value. Selling the property, converting it to an LLC interest, or gifting it during lifetime are the standard mitigations.

9. Your 8-item pre-death estate tax planning checklist

10. Frequently asked questions