Federal Estate Tax Overview
The federal estate tax applies to estates exceeding a certain threshold. For 2026, the key numbers are:
- Exemption amount: approximately $7 million per individual
- Tax rate: up to 40% on amounts above the exemption
- Portability: unused exemption can transfer to a surviving spouse
Which States Have Estate Taxes?
Currently, these states impose their own estate or inheritance taxes:
- Estate tax states: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, DC
- Inheritance tax states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania
Note that Maryland is the only state with both an estate tax and an inheritance tax.
Estate Tax vs. Inheritance Tax
These are commonly confused but are quite different:
- Estate tax is paid by the estate before distribution
- Inheritance tax is paid by the beneficiaries after receiving assets
Filing Requirements
Even if no tax is owed, filing may still be required:
- IRS Form 706 — due 9 months after death (with 6-month extension available)
- State estate tax returns — deadlines vary by state
- Final income tax return — Form 1040 for income earned before death
- Estate income tax return — Form 1041 for income earned by the estate
Strategies to Minimize Estate Taxes
- Annual gifting — give up to the annual exclusion amount per recipient
- Charitable giving — donations reduce the taxable estate
- Irrevocable life insurance trusts — remove life insurance from the estate
- Family limited partnerships — can provide valuation discounts
- Qualified personal residence trusts — transfer home at reduced value
When to Seek Professional Help
Estate tax planning is complex. Consult a tax professional if:
- The estate value approaches or exceeds federal or state thresholds
- The deceased owned property in multiple states
- There are business interests in the estate
- International assets are involved