States With a Death Tax and How They Work

When a person passes away, their assets can be subject to taxation. The term “death tax” is a general phrase for taxes levied after death, covering two types: the estate tax and the inheritance tax.

The primary difference lies in who pays the tax. An estate tax is levied on the total value of a deceased person’s assets, known as their estate, which pays this tax before assets are distributed. Conversely, an inheritance tax is paid by the individuals who receive property from the estate.

The federal government imposes an estate tax but not an inheritance tax. However, several states have their own systems, with some levying an estate tax, others an inheritance tax, and one state imposing both.

States with an Estate Tax

A state estate tax is imposed on the net value of a decedent’s assets at the time of death. The estate is legally responsible for paying this tax before distributing the remaining assets to heirs.

Twelve states and the District of Columbia impose an estate tax. Each jurisdiction sets its own exemption amount, which is the value an estate can have before tax is due. If an estate’s net value is below this threshold, no state estate tax is owed.

The table below outlines the states with an estate tax, along with their respective exemption amounts and tax rate ranges for 2025.

| State | 2025 Exemption | 2025 Top Tax Rate |
| :— | :— | :— |
| Connecticut | $13,990,000 | 12% |
| District of Columbia | $4,873,200 (adjusted for inflation) | 16% |
| Hawaii | $5,490,000 | 20% |
| Illinois | $4,000,000 | 16% |
| Maine | $7,000,000 (adjusted for inflation) | 12% |
| Maryland | $5,000,000 | 16% |
| Massachusetts | $2,000,000 | 16% |
| Minnesota | $3,000,000 | 16% |
| New York | $7,160,000 | 16% |
| Oregon | $1,000,000 | 16% |
| Rhode Island | $1,802,431 (adjusted for inflation) | 16% |
| Vermont | $5,000,000 | 16% |
| Washington | $3,000,000 | 20% |

Several states have unique provisions. Connecticut has a gift tax unified with its estate tax, meaning lifetime gifts can reduce the exemption available at death. New York has a “cliff” where if the taxable estate exceeds the exemption by more than 5%, the entire estate is taxed. Unlike the federal system, most states with an estate tax do not allow for portability, which lets a surviving spouse use any unused exemption from the deceased spouse.

States with an Inheritance Tax

An inheritance tax is levied on assets received by a beneficiary, with the tax calculated based on the value of the property and the heir’s relationship to the deceased.

State laws create “classes” of beneficiaries based on family relationship. A surviving spouse and children are in the most favored class, while more distant relatives and unrelated individuals receive less favorable tax treatment.

As of 2025, five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Tax rates and exemptions vary significantly by beneficiary class.

Transfers to a surviving spouse are exempt in all five states. In New Jersey, children and grandchildren are also exempt, but in other states, they may face a tax above a certain amount. For example, in Nebraska, immediate relatives pay a 1% tax on inheritances over $100,000. Distant relatives and unrelated beneficiaries face the highest tax rates, up to 16%.

Maryland is the only state to levy both an inheritance and an estate tax. The inheritance tax paid can be claimed as a credit on the state estate tax return to avoid double taxation.

The Federal Estate Tax Explained

Separate from state-level taxes, the U.S. government imposes its own estate tax, calculated on the value of the decedent’s worldwide assets.

For 2025, the federal estate tax exemption is $13.99 million per individual, and this amount effectively doubles to $27.98 million for married couples. Any value of an estate that exceeds the exemption amount is taxed at a top rate of 40%.

A feature of the federal system is portability, which allows a surviving spouse to use their deceased spouse’s unused federal exemption. To elect portability, the executor must file a federal estate tax return, Form 706, even if no tax is due. IRS guidance under Revenue Procedure 2022-32 extended the filing deadline to five years after the decedent’s death.

The current federal exemption amount is temporary. Under the Tax Cuts and Jobs Act of 2017, the exemption is scheduled to be cut roughly in half on January 1, 2026, to a baseline of $5 million, adjusted for inflation. State death taxes paid are deductible on the federal estate tax return.

Residency and Asset Inclusions

A decedent’s taxable estate includes all property they own or have an interest in at the time of death. This category encompasses real estate, bank and investment accounts, retirement funds like 401(k)s and IRAs, vehicles, and valuable personal property. Life insurance proceeds are also included if the policy was owned by the decedent.

A state’s authority to levy a death tax hinges on the decedent’s residency, or “domicile,” which is the place a person considers their permanent home. States establish domicile by looking at factors like where a person files income tax, holds a driver’s license, is registered to vote, and maintains their primary residence. An individual can only have one domicile.

A non-resident of a state with a death tax may still be liable for taxes there if they own tangible property, such as a vacation home, located within that state’s borders. The value of that property could be subject to the state’s tax. The tax is apportioned based on the property’s value relative to the decedent’s total estate.