State estate and inheritance taxes

Who charges them, at what level, and how they treat life insurance

Two different taxes

They get lumped together and they work differently.

An estate tax is charged to the estate itself, before anything is distributed. It looks at the total value of what the person left. The estate files and the estate pays.

An inheritance tax is charged to each person who receives something, and the rate depends on their relationship to the person who died. A spouse usually pays nothing. A niece, a friend, or an unmarried partner usually pays the most. Two people inheriting equal amounts from the same estate can owe very different amounts.

Most states have neither tax. A minority charge one or the other. Maryland is the only state that charges both.

States with an estate tax

Thresholds and rates below are for 2026, from each state's own revenue department, statute, or official form. The threshold is the level at which the tax can begin to apply. The top rate is the highest marginal rate, and it applies only to the portion above the bracket shown.

The last column runs the same estate through each state's own rate schedule, so you can see what the differences mean in money rather than in percentages. The example is a taxable estate of $5,000,000, meaning after debts, expenses and anything passing to a spouse have been taken out. It's a made-up estate, chosen because it lands above some thresholds and below others.

Those tax amounts are our arithmetic, not a state's. No state publishes a figure like this. We computed each one from the state's own published rate schedule, and the workings are in our source notes. For a real number, use the state's own calculator or an accountant.

Six of the thirteen charge nothing at all on that estate. Among the seven that do, the range runs from $1,299 in the District of Columbia to $425,000 in Oregon. Same family, same money, same year, and a difference of more than $400,000 depending only on where the person happened to live.

That spread is a strong argument for reading your own state's rules rather than a national summary. It's also why moving in retirement, or owning property in a second state, is worth raising with an attorney.

Massachusetts works differently than almost everyone reports

Massachusetts is not a $2,000,000 exemption. Its own guide says the tax applies to decedents dying on or after January 1, 2023 "with a gross estate of more than $2,000,000."

Once you are over that line, the tax is computed on the estate using an older federal table, and then reduced by a credit of $99,600. The first $2,000,000 is not carved out of a larger estate. That distinction changes the arithmetic substantially, and it is the most commonly misstated figure in this area.

Here it is worked through, using the same $5,000,000 estate:

1. Start with the taxable estate: $5,000,000
2. Subtract the $60,000 adjustment the computation uses: $4,940,000
3. Look that up in the table: $290,800, plus 11.2% of the amount over $4,040,000. That's $290,800 + $100,800 = $391,600
4. Subtract the credit: $391,600 − $99,600 = $292,000

If the $2,000,000 really were an exemption, the tax would be computed on $3,000,000 instead and would come out far lower. It isn't, and it doesn't.

Illinois has a threshold, not an exemption either

Illinois says so in its own words: the $4,000,000 is a taxable threshold and not a credit against tax. The tax is the lesser of two separately computed amounts, and because Illinois estate tax is itself deductible in working out the estate it's charged on, the calculation loops back on itself.

You don't need to run that arithmetic. The point is that the two intuitive answers are both wrong. On our $5,000,000 estate, "40% of the $1,000,000 over the threshold" would give $400,000, and reading the rate table straight would give $391,600. The state's own published answer is $285,714. Use the Attorney General's calculator, or an accountant.

New York has a cliff

In most states, going a dollar over the threshold means a dollar is taxed. New York is not most states.

New York's credit shrinks as the taxable estate rises above the exclusion, and the statute provides that no credit at all is allowed to the estate of a decedent whose New York taxable estate exceeds 105% of the basic exclusion amount.

Above that line the whole estate is taxed, not just the amount above the exclusion. Here is what that means in 2026 figures, where the exclusion is $7,350,000 and 105% of it is $7,717,500:

The second estate is $367,500 larger. The tax on it is $734,780, almost exactly twice the extra amount. The family that inherits the larger estate ends up with less money than the family that inherits the smaller one.

That's the cliff. It's the reason New York estate planning pays unusual attention to keeping an estate under the line, and why charitable gifts made near that boundary can be worth more than they cost.

Three taxes people still ask about that no longer apply

• Delaware repealed its estate tax effective January 1, 2018.
• New Jersey imposed no estate tax for deaths after January 1, 2018. Its inheritance tax remains.
• Iowa's inheritance tax no longer applies to estates of decedents dying on or after January 1, 2025.

States with an inheritance tax

Five states. In every one of them a surviving spouse is exempt, and in most, children are too. The rates climb as the relationship gets more distant.

The pattern is worth absorbing if you're planning to leave money to someone outside your immediate family. An unmarried partner, a stepchild who was never adopted, a close friend, or a caregiver typically sits in the highest bracket. If that's your intention, it's a conversation to have with an attorney in that state rather than a surprise for the person you meant to help.

How life insurance is treated

This is the part that actually differs by tax, and it's the reason this page exists.

Under state estate taxes: no special break

State estate taxes generally measure from the federal gross estate. That means the federal rule controls: if the insured owned the policy or held control over it, the proceeds are counted.

Two states say it in a single sentence, and they're the clearest statements of the principle we've found anywhere.

Massachusetts lists among the assets in the gross estate: "Life insurance proceeds (even though payable to beneficiaries other than the estate)."

Maine states the other side of the same rule: a payment is included where it went to the estate, or where it went directly to a beneficiary but the decedent retained incidents of ownership over the policy.

So in an estate-tax state, the ownership question we cover on estate planning is the one that matters. Who controlled the policy decides whether the death benefit is counted.

Under state inheritance taxes: four of the five exempt it

Here the answer flips, and generously.

• Pennsylvania has the broadest rule. Its Department of Revenue states that all proceeds of life insurance on the life of the decedent are exempt from Pennsylvania inheritance tax. Because the exemption attaches to insurance on the decedent's life rather than to the beneficiary designation, it holds even where proceeds are payable to the estate. The same ruling makes a distinction: a product marketed as an annuity is not life insurance for this purpose, and is taxable.
• New Jersey imposes no inheritance tax on life insurance proceeds paid to a named beneficiary.
• Maryland exempts proceeds payable to any beneficiary other than the estate of the insured. This does not carry over to Maryland's separate estate tax, which follows the federal gross-estate rules.
• Kentucky treats life insurance payable to a designated beneficiary, including a trustee, as tax-free.

For Nebraska, the statute expressly taxes proceeds receivable by the executor or administrator, and expressly exempts proceeds receivable by a trustee. We could not find an official Nebraska source addressing proceeds paid to a named individual, so that is a question for a Nebraska attorney rather than something we'll state either way.

Common questions

Last updated: July 23, 2026