When Is an Estate Plan Subject to State Death Taxes?

1. What Are State Death Taxes?

Depending on the state, your estate may be subject to:

• State Estate Tax: A tax on the total value of your estate before assets pass to heirs.

• State Inheritance Tax: A tax imposed on the person receiving the inheritance.

• Both (rare): A few states impose both types.

Each state sets its own:
✔ Tax rate
✔ Exemption amount
✔ Rules for who pays
✔ Special exemptions for spouses or children

2. States That Still Charge Death Taxes

Even though the federal estate tax exempts estates under $13.61 million (2024), many states have much lower limits—some under $1 million.

States with a State Estate Tax include:

• New York

• New Jersey (estate tax repealed, but inheritance tax remains)

• Massachusetts

• Connecticut

• Oregon

• Vermont

• Rhode Island

• Maryland

• Washington

• Minnesota

• Illinois

• Maine
  …and several others.

States with an Inheritance Tax include:

• Pennsylvania

• Maryland

• Nebraska

• Kentucky

• Iowa (phasing out by 2025)

• New Jersey

Some states tax non-residents who own property there.

3. When Is Your Estate Plan Subject to State Death Taxes?

Your estate may face state death taxes if:

✔ You live in a state that imposes them

Your residency determines what estate tax rules apply.

✔ You own real estate in a state with inheritance or estate tax

Even if you live in Florida (no death tax), owning property in New York or Maryland can trigger a state tax bill.

✔ Your estate exceeds the state exemption amount

For example:

• New York exemption: ~$6.58M

• Massachusetts exemption: $2M

• Oregon exemption: $1M
  If your estate exceeds these limits, taxes may apply even if you avoid federal taxation.

✔ You leave assets to someone taxed by your state’s inheritance rules

Some states tax:

• siblings

• adult children

• nieces/nephews

• friends

• unmarried partners

Spouses rarely pay, but unmarried partners often do.

4. Common Mistakes That Trigger State Death Taxes

Many people unintentionally expose their estate to taxes by:

• Owning property in a high-tax state

• Failing to use trust planning

• Not relocating plans after moving

• Naming beneficiaries incorrectly

• Forgetting to account for life insurance or business value

Often, simple adjustments can avoid tens or hundreds of thousands in state taxes.

5. How to Reduce or Eliminate State Death Taxes

Options include:

• Credit shelter trusts

• Gifting strategies

• Life insurance trusts

• Relocating property ownership into an LLC or trust

• Changing residency

• Spousal portability planning (in states that allow it)

The right strategy depends on where you live and where you own property.

Final Thought

Even if your estate is far below the federal tax limit, state death taxes can still apply and catch families by surprise.
A smart estate plan doesn’t just prepare for the federal rules — it prepares for your state’s rules too.

A simple review with an estate planning attorney can ensure your heirs keep more of what you've built.