Most Americans expect to pay taxes while they’re alive. What many don’t realize is that taxes can still apply after death — and in some cases, they can significantly reduce what heirs receive.
An estate tax is levied on assets owned at the time of death. It’s paid by the estate before money or property passes to beneficiaries, which means inheritances can be reduced before loved ones ever see them.
While the federal estate tax grabs headlines, state estate taxes — especially in certain “cliff states” — may pose a bigger risk for many families.
Here’s what you need to know.
Who Imposes Estate Taxes?
The federal government charges an estate tax, and so do 12 states plus the District of Columbia.
Federal Estate Tax Rules
For 2025, the federal exemption is $13.99 million per person, rising to $15 million in 2026 tax-cliff. Only the portion of an estate above those thresholds is taxed, at rates between 18% and 40%, depending on the tier.
Because those limits are high, relatively few estates are affected. In 2023, just 9,024 federal estate tax returns were filed, and only about 40% were taxable, generating $44.4 billion in revenue.
For most Americans, federal estate tax is not the biggest concern.
Why State Estate Taxes Matter More
State thresholds are typically much lower than the federal exemption, which means more families may unintentionally cross them.
For example, Oregon’s exemption is just $1 million. According to Sam Tutko, vice president of Miser Wealth Partners, many homeowners could reach that level simply through property appreciation.
“A number of homes alone are probably worth about that,” Tutko noted.
Add retirement savings like a 401(k) and basic checking accounts, and an estate can quickly exceed the threshold.
The states (plus D.C.) with estate taxes are:
- Connecticut
- District of Columbia
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
What Is a “Tax Cliff”?
Some states apply estate taxes in a particularly harsh way. These are known as cliff states.
In a cliff state, exceeding the exemption by even a small amount can trigger tax on the entire estate, not just the portion above the threshold.
That means crossing the line by a single dollar could cost heirs hundreds of thousands in taxes.
The Two Cliff States
Illinois
- Exemption: $4 million
- Tax applies once the estate exceeds that amount
- Progressive rates range from 0.8% to 16%
New York
- Exemption: $7.16 million
- If the estate reaches 105% of the exemption (about $7.52 million in 2025), the entire estate becomes taxable
- Rates range from 3.06% to 16%
In both cases, careful estate planning can make the difference between no tax and a substantial one.
States With Especially Low Thresholds
Beyond Illinois and New York, several states have relatively low exemptions that could affect upper-middle-income households:
Oregon
- Exemption: $1 million (lowest in the country)
- Tax rates: 10% to 16%
Massachusetts
- Exemption: $2 million
- Rates: 0.8% to 16%
Washington
- Exemption: $2.193 million (if death occurs by June 30, 2025)
- Exemption: $3 million (if death occurs between July 1 and Dec. 31, 2025)
- Rates: 10% to 25%
Minnesota
- Exemption: $3 million
- Rates: 13% to 16%
Rising home values, investment gains, and inflation have pushed more families closer to these limits than they may realize.
Maryland: The Double-Tax State
Maryland stands out because it has both an estate tax and an inheritance tax.
- Estate tax applies to estates above $5 million, with rates between 0.9% and 16%.
- Inheritance tax of 10% may apply to non-immediate family members receiving assets over $1,000, even if no estate tax is due.
This combination can significantly reduce what distant relatives or non-family beneficiaries ultimately receive.
Can Estate Taxes Be Avoided?
Experts agree: planning ahead is essential.
Tutko advises working with a team that may include:
- An estate planning attorney
- A CPA or accountant
- A financial adviser
“If an individual has federal estate tax concerns, then they need to work with a team. That’s not something to DIY,” Tutko said
Common Strategies Include:
- Annual tax-free gifting (up to $19,000 per person in 2025)
- Establishing an irrevocable trust to remove assets from the taxable estate
- Funding 529 education plans
- Making charitable donations through a will or trust
However, irrevocable trusts require caution. Once created, their terms and beneficiaries typically cannot be changed
The Bottom Line
Federal estate taxes may affect only the wealthiest Americans, but state estate taxes — especially in cliff states — can surprise families who assume they’re safe.
If you live in a state with a low exemption threshold, even a modest estate that includes a home and retirement savings could be exposed.
Planning early can help ensure your loved ones inherit what you intended — instead of watching a significant portion go to taxes.