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Estate and inheritance taxes imposed by the government — federal, state, or both — tax the transfer of your assets when you die. Technically, estate taxes are paid from the deceased’s assets, while inheritance taxes are paid by beneficiaries.
The result is more money for the government and less money for beneficiaries, plus the hassle of extra tax paperwork. If you want to minimize death taxes, you should know when they apply, how they work, and what strategies you might employ.
The federal estate tax: Exemptions and rates
At the federal level, your estate’s value is the fair market value of all your assets and lifetime taxable gifts, minus certain debts, charitable contributions, spousal transfers, and estate administration costs.
The federal estate tax applies to estates worth more than $13.61 million for deaths in 2024 ($13.99 million in 2025). For married couples, the exclusion effectively doubles to $27.2 million in 2024 ($27.98 million in 2025). The exclusion amount adjusts annually for inflation and may be cut approximately in half on January 1, 2026, if Congress does not extend the estate tax provisions of the 2017 Tax Cuts and Jobs Act. (Related: Planning now? The estate planning 2026 question mark)
Only the estate value exceeding the exclusion amount is taxable. Marginal rates start at 18 percent on the first $10,000 and reach 40 percent on amounts over $1 million.
There is no federal inheritance tax.
State estate taxes
“Some states have decoupled from federal estate tax law and have their own system,” said Michele Collins, director of advanced sales in MassMutual’s Boston office. “Federally, you might not have a taxable estate, but in your state you might.”
Estate taxes are imposed by the District of Columbia and 13 states:
● Connecticut
● Hawaii
● Illinois
● Maine
● Maryland
● Massachusetts
● Minnesota
● New Jersey
● New York
● Oregon
● Rhode Island
● Vermont
● Washington
The threshold and rates for the imposition of estate taxes will vary from state to state. Here are some examples.
Example 1: Oregon — Low estate tax threshold
The estate executor for anyone who resided or owned real estate in Oregon must file an estate tax return if the gross estate is worth $1 million or more. After deducting debts, charitable bequests, and estate administration costs, the estate tax rate starts at 10 percent for amounts at $1 million or more. The top rate is 16 percent on taxable estate values of $9.5 million or more.
Example 2: Massachusetts — Low threshold and quickly climbing rates
Massachusetts allows a $2 million estate tax exemption. Rates for the taxable portion of the estate start around 1 percent and climb to 16 percent for taxable estate values over $6,040,000.
Inheritance taxes
“A number of U.S. states with estate or inheritance taxes have begun to slowly phase out or repeal them, largely in an effort to remain as competitive domiciles for wealthier taxpayers,” said Perry E. Brown, CFP®, CTFA, advanced wealth and tax strategist with MassMutual Private Wealth & Trust. “Specifically, Iowa is in the process of phasing out its inheritance tax.”
Still, six states currently have inheritance taxes:
● Iowa (through 2024)
● Kentucky
● Maryland
● Nebraska
● New Jersey
● Pennsylvania
If you reside or own property in an inheritance tax state, your heirs may owe tax on the value of what they receive under the laws of your state (not theirs). Tax liability depends on their relationship to you.
No state levies an inheritance tax on surviving spouses. Tax rates and exemptions for other beneficiaries vary by state but are usually higher the more familial-distant the relationship (a friend might pay a higher rate than a sibling).
Asset type does not affect inheritance tax exemptions or rates. These will be the same whether the asset is a primary residence, a vacation home, stocks, or artwork.
The taxable value of an inherited asset is typically its fair market value on the date of death (or the fair market value on the date of death, minus the purchase price). For some assets (such as real estate or collections), tax authorities may require a professional appraisal to determine fair market value. The estate will pay for the appraisal.
Inheritance tax rates and thresholds
These examples show how inheritance tax laws can vary by state and beneficiary relationship.
Example 1: Nebraska — Lower exemptions and higher rates for more distant relatives
Nebraska taxes inherited assets as follows:
● Spouses pay nothing.
● Immediate family, grandparents, and grandchildren pay no inheritance tax on the first $100,000, then 1 percent after that. An exception: Heirs in this group pay nothing if younger than 22.
● Aunts, uncles, and cousins pay nothing on the first $40,000, then 11 percent after that.
● Everyone else pays nothing on the first $25,000, then 15 percent after that.
Example 2: New Jersey’s complex marginal inheritance tax system
New Jersey taxes heirs as follows:
● Spouses, parents, children, grandchildren, and charities pay nothing.
● Siblings and children-in-law pay no tax on the first $25,000, then 11 percent on the next $1,075,000, 13 percent on the next $300,000, 14 percent on the next $300,000, and 16 percent on everything over $1,700,000.
● Nieces, nephews, aunts, uncles, and non-relatives have no exemption and pay 15 percent on the first $700,000, then 16 percent on every dollar after that.
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States with estate or inheritance taxes in 2024 | ||
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State |
Estate Tax |
Inheritance Tax |
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Connecticut |
Exemption: $13.61 million Rate: 12% |
No |
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District of Columbia |
Exemption: $4,715,600 Rate: 11.2% – 16% |
No |
|
Hawaii |
Exemption: $5,490,000 Rate: 0% – 10% |
No |
|
Illinois |
Exemption: $4,000,000 Rate: 0.8% – 16% |
No |
|
Iowa |
No |
Exemption: varies Rate: 0% – 3% |
|
Kentucky |
No |
Exemption: varies Rate: 0% – 16% |
|
Maine |
Exemption: $6,800,000 Rate: 8% – 12% |
No |
|
Maryland |
Exemption: $5,000,000 Rate: 0.8% – 16% |
Exemption: varies Rate: 0% or 10% |
|
Massachusetts |
Exemption: $2,000,000 Rate: 0.8% – 16% |
No |
|
Minnesota |
Exemption: $3,000,000 Rate: 13% – 16% |
No |
|
Nebraska |
No |
Exemption: varies Rate: 0% – 15% |
|
New Jersey |
No |
Exemption: varies Rate: 0% – 16% |
|
New York |
Exemption: $6,940,000 Rate: 3.06% – 16% |
No |
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Oregon |
Exemption: $1,000,000 Rate: 10% – 16% |
No |
|
Pennsylvania |
No |
Exemption: varies Rate: 0% – 15% |
|
Rhode Island |
Exemption: $1,774,583 Rate: 0.8% – 16% |
No |
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Vermont |
Exemption: $5,000,000 Rate: 16% |
No |
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Washington |
Exemption: $2,193,000 Rate: 10% – 20% |
No |
Maryland’s unique death tax system
Maryland is the only state to impose both estate and inheritance taxes. For 2024, no estate tax is due unless the deceased’s assets total more than $5 million.
Close relatives, such as a spouse, child, or sibling, do not owe inheritance tax. Other heirs, including nieces, uncles, cousins, and friends, pay 10 percent.
Keeping assets out of probate (through a payable on death beneficiary designation on a bank account, for example) does not keep them from being subject to inheritance tax. Nor does naming someone a joint owner of an account or transferring assets to them in the two years before death.
Maryland does not doubly tax the deceased’s assets. Any estate tax due is reduced by the amount of any inheritance tax paid.
Mitigation strategies
If your estate’s value or the sums you want to leave others are large enough to be hit by estate or inheritance taxes, planning may help to reduce or eliminate these liabilities. Here are some strategies to consider:
- Awareness. Knowing the laws can help you avoid unnecessary — and sometimes questionable — taxes. For example, Pennsylvania law says that if you add your mother to your savings account, say for convenience, and she dies, you will owe inheritance tax on half of the account’s value after her death — even though all of the money was yours.
- Annual gifts. You can gift a limited amount of assets to as many individuals as you want each year without impacting your federal lifetime estate tax exclusion. The annual exclusion amount is $18,000 in 2024 and $19,000 in 2025. State laws may differ. Subject to certain conditions, gifts made during your lifetime can reduce your eventual taxable estate, reducing the estate tax bill or bringing you under applicable thresholds. (Learn more: Lifetime gifting: Benefits and considerations)
- Irrevocable trusts. Irrevocable trusts remove assets from your estate and potentially reduce or eliminate death taxes on those assets. You must be willing to permanently give up control of those assets, and trusts can be heavily taxed if not set up correctly. (Related: Types of trusts and what they are used for)
- Permanent life insurance. Many people use life insurance for estate planning to help preserve assets for heirs. Essentially, the life insurance death benefit can help pay estate or inheritance taxes. This strategy can be especially important if you intend to pass down a home or the family farm and your heirs would otherwise have to sell it to pay the taxes.
- Change of residence. You can’t avoid state taxes by moving when death is imminent because states have look-back periods for determining tax residency. However, changing your domicile far enough in advance could be a successful tax mitigation strategy depending on the other tax and financial implications of moving.
- Charitable donations. Supporting causes you care about by donating cash or other assets is another way to reduce your taxable estate. If you itemize, you may also enjoy an income tax deduction.
- Education funding. Helping your grandchildren by paying their college tuition directly or funding a 529 savings plan might also decrease your taxable estate.
Preparing for the inevitable
When planning to minimize estate and inheritance taxes, consider not just the present value of your assets, but also what their value might be when you die. A MassMutual financial professional and an estate tax attorney can help you review your circumstances and discuss tax-reduction strategies that could benefit your loved ones.
Discover more from MassMutual…
How to guard against problems for your heirs
What are the distribution rules for an inherited IRA?
Wealth management: Is setting up a trust right for you?
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