Can States Also Levy Estate Taxes?

What Are the Differences Between Federal and State Estate Taxes?

Taxes related to estates can sometimes be confusing. You may hear terms like estate tax and inheritance tax, but these are not the same as income taxes. Instead, they apply only in certain situations at the time of death.

An estate may be subject to federal estate tax if the fair market value of includable assets exceeds the federal exemption amount — the amount that can pass to heirs without triggering federal estate tax. Includable assets may include cash and securities, life insurance, real estate, trusts, annuities, business interests, collectibles, and other property.

In 2026, the federal estate tax exemption is $15 million per person and $30 million for a married couple. That amount is expected to be indexed for inflation beginning in 2027. Because the federal exemption is currently so high, many people may not focus heavily on federal estate taxes when creating their estate plans.

However, some states also impose their own estate taxes or inheritance taxes, and this can easily be overlooked in planning, especially after a move from one state to another.

As of 2026, 12 states and the District of Columbia impose a state-level estate tax, while 5 states impose a separate inheritance tax. States with an estate tax include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.

Most states, including California, do not currently impose either an estate tax or an inheritance tax. Still, it is wise to stay alert to these issues because state tax laws can change over time, and you may later move or own property in another state. In those situations, understanding any applicable state-level taxes can be important in carrying out your estate planning goals. It is also helpful to understand how state rules differ from federal law and how those rules interact with your overall estate plan.

Federal vs. State Estate and Inheritance Taxes: Key Differences

• The federal government imposes an estate tax, but it does not impose an inheritance tax. Inheritance taxes are determined entirely by the states. A state may impose an estate tax, an inheritance tax, neither, or both.
• The federal estate tax applies uniformly across the United States. It is based on the value of a deceased person’s estate above the federal exemption amount at death. For married couples, portability generally allows a surviving spouse to use a deceased spouse’s unused federal exemption, provided certain requirements are met.
• At the state level, transfer taxes follow a separate set of rules. States may impose:
  • Estate taxes, which are paid by the estate before assets are distributed, or
  • Inheritance taxes, which are paid by the individuals receiving the inheritance, often with exemptions for spouses or close relatives.
• Each state sets its own exemption amounts, tax rates, portability rules, and definitions of what is taxable. In some cases, the amount owed may depend on the beneficiary’s relationship to the deceased.
• State exemption amounts are often much lower than the federal exemption. As a result, an estate that owes no federal estate tax could still be subject to state-level estate or inheritance tax, depending on the laws of the state involved.

Understanding the differences between estate and inheritance taxes — and knowing which states impose them — can help you plan more efficiently and support a smoother transfer of wealth. In some cases, estate tax exposure may be reduced through strategies such as annual gifting or charitable giving.

For more information, speak with your professional advisor.

This information is provided for general informational purposes only and should not be construed as tax advice. Always consult your professional advisor(s) before making decisions about tax-related matters, especially where complex laws or strategies are involved.