State Inheritance and Estate Taxes
When discussing death taxes, we normally find the comments center around Federal estate taxes. However, taxpayers should also consider the impact, where applicable, of state inheritance tax and state estate tax, even though all states do not have both tax structures, as discussed below.
One reason to pay little attention to the state death taxes (inheritance and estate taxes) is that these taxes, if they apply in each state, are normally assessed at a rate that is much lower than the Federal tax.
However, before moving to the specifics, it is good to be clear on how the death tax terms are being used.
As mentioned recently in an update article on this issue of death taxes by The Tax Foundation, estate taxes are assessed, when applicable, against the estate of the decedent.
Inheritance taxes are normally charged against the beneficiary receiving assets from the decedent.
The Federal law in this death tax area has an estate tax, not an inheritance tax.
Having stated the basic definitional points, the noted Tax Foundation issued a study in October 2026, providing an overview of this area and a list of the states which have a death tax or no death tax.
(See The Tax Foundation study at https://taxfoundation.org/data/all/state/estate-inheritance-taxes)
Here is a good state summary from The Tax Foundation Report for those states that have a death tax.
Notes: Connecticut's exclusion matches the federal threshold as of January 1, 2023. Estate tax currently capped at $15 million.
In Kentucky, Nebraska, and New Jersey, the inheritance tax exemption varies by class of beneficiary. Maximum exemption amount is shown. In Maryland, no inheritance tax is imposed if the estate's total value does not exceed $50,000.
The Federal Estate tax rate is normally at 40% of the taxable estate, once the taxable estate exceeds the current Federal 15 million exemption, if applicable, (and without any spousal deduction), and after a lower tax rate is imposed on the first 1 million of taxable estate. This 40% rate is substantially greater than any state death tax.
Thus, again, it is reasonable that most discussions as to death taxes are focused on Federal death taxes (estate tax). However, as mentioned, it is very important for potential taxpayers of death taxes to be aware of the state death tax that might exist, given the state, the exemptions, and the rate of tax in the given state.
As we have mentioned in prior Tips, taxpayers often undertake the selection of their state of residency by looking in part at the taxes that exist in the given state that is being examined and considered for the home state. Income taxes are important, along with sales, use, transfer, and many other taxes. Added to this list of tax considerations should also be the death taxes that might be applicable under the state law in question.
By
Dr. Mark Lee Levine, Professor, University of Denver
Comments