Don’t go over the tax cliff. State estate tax may kill inheritances

Medora Lee, USA TODAY

Wed, February 25, 2026 at 7:13 PM GMT+9 5 min read

Americans pay taxes throughout their lives. They may think they’re done once they die. Not so.

An estate tax can still be levied on things the deceased owned or had certain interests in when they die. The tax is paid by the person’s estate and can cut into beneficiaries’ inheritances. The federal government charges an estate tax, but the threshold is high, so most people don’t have to worry about it. Some states, not all, also have estate taxes − you may have to worry about those.

States with estate taxes usually have thresholds that are much lower than the federal government’s, which many people may reach. Certain states are also “cliff states” where estate taxes exceeding a specific, relatively low exemption threshold cause the entire estate − not just the excess amount − to become taxable. Sometimes, a single dollar can trigger hundreds of thousands of dollars in taxes, experts said.

Below is what you need to know about state estate taxes so you can plan for them and save your loved ones from getting a much smaller inheritance than you meant for them to have.

Who levies an estate tax?

The federal government levies an estate tax, but a dozen states and the District of Columbia do, too.

Federal tax rates range between 18% and 40%, depending on the amount above the $13.99 million threshold, or exemption amount, per person in 2025 or $15 million in 2026. For each tax tier, you pay a base tax charge and an additional marginal rate.

Most people probably won’t have to pay these taxes because the thresholds are high. In 2023, for example, only 9,024 federal estate tax returns were filed, IRS data show. Of those, only about 40% were taxable, but the revenue garnered was $44.4 billion.

State estate taxes, though, may be a different story. Exemption levels and the top tax rates are usually much lower than the federal government’s, making them easier to hit, said Sam Tutko, vice president of Miser Wealth Partners.

For example, Oregon’s exemption is only $1 million. “A number of homes alone are probably worth about that,” Tutko said. “So if you own a home and have $60,000 in checking and a 401(k), you’re likely exposed to estate tax.”

The dozen states plus the District of Columbia that have an estate tax are:

Connecticut

District of Columbia

Hawaii

Illinois

Maine

Maryland

Massachusetts

Minnesota

New York

Oregon

Rhode Island

Vermont

Washington

Sanii Stewart-McIver makes her way through three tax returns utilizing an instructional video and an IRS document for reference in order to fill out 1040 forms in a personal finance class at Winooski High School on February 21, 2023. Photo Feb 21 2023 8 33 47 Am

Where are the cliff states?

The two cliff states are Illinois and New York.

Illinois's threshold for estate taxes is $4 million, which means there's no estate tax if the value of the estate is $4 million or less. However, anything above $4 million triggers a progressive tax rate ranging from 0.8% to 16% on the entire estate.

New York's estate tax of 3.06% to 16% kicks in if the estate's value exceeds $7.16 million. However, if the estate is 105% or more of the exemption amount (approximately $7.52 million in 2025), the estate tax will apply to the entire estate, not just what is above the $7.16 million exemption amount.

 






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Are there other states to watch out for?

Maryland is the only state that has both an estate tax and an inheritance tax. An inheritance tax is usually paid by the person who receives an asset from you.

Estate values that exceed $5 million in Maryland face estate taxes between 0.9% and 16%, depending on the amount above the $5 million mark. Separately, anyone outside your immediate family who receives an asset worth more than $1,000 from you may pay a 10% inheritance tax on their gift, even if no estate tax is due.

Other states with low thresholds to be wary of include:

**Oregon: **$1 million, the lowest in the country, "impacting not only the wealthiest households but also many upper middle-income families whose assets have appreciated in recent years due to inflation and favorable real estate and financial market conditions," wrote Andrey Yushkov, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, in a blog. The state's progressive tax rate ranges from 10% to 16%.

**Massachusetts:** $2 million, with amounts above that taxed between 0.8% and 16.0%.

**Washington: **$2.193 million if the person died by June 30, 2025, and $3 million if the person died between July 1, 2025, and Dec. 31, 2025. Rates are between 10% and 25%, depending on how much the taxable estate exceeds the threshold.

**Minnesota:** $3 million, with a tax rate range of 13% to 16%.

Can estate taxes be avoided?

Planning while you’re still alive is the best way to avoid estate taxes, experts said. Work with a team of professionals, including an attorney, accountant and financial adviser, they said.

“If an individual has federal estate tax concerns, then they need to work with a team,” Tutko said. “That’s not something to DIY.”

Professionals know what assets count toward your taxable estate and can find ways to lower that value. Strategies may include annual tax-free gifting ($19,000 per person in 2025), an irrevocable trust that removes assets from your taxable estate and protects them from creditors, contributions to 529s and other educational accounts, or charitable donations through a will, trust, or estate plan, experts said.

Just be careful of irrevocable trusts, Tutko said. Terms and beneficiaries of an irrevocable trust cannot be changed once it’s created.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.

This article originally appeared on USA TODAY: State estate taxes can shrink inheritances. Which states have them?

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