Expecting an Inheritance? Find Out If Your State has Estate Tax

Many people assume that once a loved one passes away, their inheritance will transfer smoothly and without tax. However, depending on where you live, your state may take a share before you ever receive it. Estate and inheritance taxes remain one of the most overlooked factors in legacy planning and knowing how they work can help you preserve more of what's passed down.

The Difference between Estate and Inheritance Taxes

Though often used interchangeably, estate and inheritance taxes are not the same. Estate tax is paid from the estate before assets are distributed to heirs, while inheritance tax is paid by the person who receives the assets.

Only a handful of states impose these taxes today. However, the impact can still be significant. Federal estate taxes apply only to estates exceeding $13.61 million in 2024. Yet, several states set their thresholds much lower for families inheriting homes, farmland, or family businesses, which can make a significant difference.

States with Estate and Inheritance Taxes

As of 2025, twelve states and the District of Columbia levy estate taxes, while six states impose inheritance taxes. Some, like Maryland, have both. The states with estate taxes include:

• Connecticut
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

Inheritance taxes, on the other hand, are found in Iowa (phasing out by 2025), Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Rates and exemptions vary widely, and in many states, close relatives such as spouses or children are exempt, while more distant heirs are not.

How Location affects Your Legacy

The state where the deceased lived or where the property is located determines which taxes apply. For example, a Florida resident may avoid state estate tax entirely, while an Oregon resident with the same net worth could owe thousands. Even moving across state lines late in life can have major estate implications.

This variation makes it critical to consider not just where you live, but where your assets are held. Real estate or business interests in another state could still be subject to that state's rules, even if your primary residence is elsewhere.

Planning Strategies to Reduce State Taxes

For those living in states with estate or inheritance taxes, there are ways to reduce the burden through thoughtful planning:

• Use trusts: Certain trusts, such as credit shelter or irrevocable life insurance trusts, can reduce the taxable estate.
• Gift assets during life: Transferring wealth gradually can help lower the taxable amount at death.
• Consider relocation: Moving to a state without estate or inheritance tax can be beneficial for high-net-worth individuals.
• Charitable giving: Leaving a portion of the estate to charity can lower overall tax liability.

Why Awareness Matters

Most people never expect taxes to cut into their inheritance. However, without planning, beneficiaries can face unexpected bills, forcing them to sell assets or property to cover costs. By understanding state rules and preparing accordingly, families can ensure that more of their legacy stays where it belongs.

Key Takeaways

• Estate and inheritance taxes differ: One is paid by the estate, the other by beneficiaries.
• Only some states impose them: Twelve have estate taxes, six have inheritance taxes, and thresholds vary.
• Where you live determines exposure, as both residency and property location affect liability.
• Planning reduces the impact: Trusts, gifting, relocation and charitable strategies help protect assets.

State estate and inheritance taxes can significantly affect how much of a loved one’s legacy ultimately reaches you. At The Werner Law Firm, our estate planning attorneys help families understand how these taxes work, how they vary across states, and what strategies can protect more of what’s passed down. Whether you’re planning ahead for your own estate or preparing to receive an inheritance, the right legal guidance can make all the difference in preserving your family’s wealth.

If you have any questions, schedule a free appointment with us through our online appointment page.

You can also read reviews from some of the hundreds of clients we have helped over the years.

Reference: AARP (March 09, 2022) "16 States With Estate and Inheritance Taxes"