Estate tax: who actually owes it

"Estate tax" sounds like something every family has to plan for. At the federal level, very few do. But a handful of states have their own estate or inheritance taxes that start at much lower amounts, and that's where many families get caught off guard.

The federal estate tax

The federal estate tax applies to what you own when you die, including your home, savings, retirement accounts, business interests and, in many cases, life insurance. In 2026, each person can leave up to $15,000,000 free of federal estate tax. Above that, the tax rate reaches 40%.

Two rules make it even less likely to apply:

• Spouses: Anything you leave to a spouse who is a U.S. citizen passes free of estate tax, no matter how much.
• Portability: When the first spouse dies, the survivor can keep whatever part of the limit the first spouse didn't use, so a married couple can shelter up to twice the amount. But this isn't automatic: the survivor's executor generally has to file a federal estate tax return to claim it, even if no tax is owed. It's an easy step to miss.

Gifts during your life

You can give up to $19,000 a year to as many people as you like without filing anything. Larger gifts simply count against your lifetime limit; you'd file a gift tax return, but you usually won't owe tax.

State estate taxes

In 2026, twelve states and the District of Columbia have their own estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.

Their limits are often far lower than the federal one. Oregon's starts at $1 million, and Massachusetts's at $2 million. For a family with a paid-off home in a high-cost area plus retirement savings, that line can be closer than it seems.

Inheritance taxes

An inheritance tax is charged to the person who receives something, and the rate usually depends on how closely they're related to you. Five states have one: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Spouses are exempt, and in most of these states children are too, but nieces, nephews, friends and unmarried partners can owe tax.

That last point matters for couples who aren't married and for anyone leaving money to chosen family.

Taxes your heirs might owe later

Even when there's no estate tax, your heirs may owe income tax on what they inherit:

• Homes and investments usually get a step-up in basis: their tax cost resets to their value when you die, so your heirs owe little or no tax if they sell soon after.
• Traditional IRAs and 401(k)s are different. Most heirs other than a spouse must empty an inherited account within 10 years, and the withdrawals are taxed as income.

Where you live matters

If you're thinking about moving in retirement, a state's estate and inheritance taxes are worth adding to the list, alongside income and property tax. And if you own property in more than one state, more than one state's rules may apply.

This is general information, not legal or tax advice. Limits change, and an estate-planning attorney can tell you how these rules apply to your family.