.png)
Estate planning isn't just about wills and trusts; it's about location. While the federal estate tax only applies to estates over $13.61 million (as of 2025), many states still impose their own state estate tax or inheritance taxes on much smaller estates. And that can quietly cost your heirs thousands, or even millions.
So here's the big question: What states have no estate tax? And which ones also avoid inheritance tax altogether?
This guide breaks it down clearly:
- Which states have no estate or inheritance tax
- Which still taxes your legacy
- And how your residency, property location, and asset structure can change your family's final tax bill
Whether you're planning a relocation, preparing for retirement, or optimizing your trust strategy, knowing your state's tax laws is essential.
Let's walk through the smart estate tax map.
Estate Tax vs. Inheritance Tax: What Wealth Planners Need to Understand
When it comes to preserving generational wealth, understanding the difference between estate tax and inheritance tax isn't just semantics; it's a financial strategy. These two taxes operate differently, apply in different states, and impact different parties. Here's how they work, what triggers them, and why the distinction matters so much for high-net-worth families and estate planners.
Estate Tax: Taxed Before Your Heirs See a Dime
Definition: The estate tax is a tax on the total value of the estate of a deceased person before any assets are passed on to heirs. It's paid by the decedent's estate itself, not the recipients.
How It Works:
Upon death, your estate is assessed for its gross value, including real estate, investments, cash, business holdings, retirement accounts, and even certain insurance policies.
Deductions (like debts, funeral expenses, charitable contributions) reduce the total to create the individual's taxable estate.
If the estate exceeds the tax threshold, estate taxes apply before distribution.
2025 Federal Threshold:
- $13.61 million for individuals
- $27.22 million for married couples (with portability)
Key Point: Only about 0.1% of estates in the U.S. owe federal estate tax, but many more fall into the trap of state-level estate taxes, which often kick in at much lower thresholds.
States that impose estate taxes: Twelve states + Washington, D.C., still impose their state estate tax in 2025, some starting at just $1 million. (We'll cover these states in the next section.)
Inheritance Tax: Taxed After the Money Is Received
Definition: Unlike the estate tax, the inheritance tax is levied on the person who receives the assets. That means your heirs, not your estate, are responsible for paying this tax. This is sometimes referred to as a "hidden tax" because many beneficiaries don't realize they may owe it.
How It Works:
After you die and your assets are distributed, the recipient may owe taxes depending on:
- Which state you live in (or where the property is located)
- Their relationship to you
- The amount inherited
Progressive Rate Structure: State inheritance tax rates are typically graduated:
- Spouses are almost always fully exempt
- Children or lineal descendants get partial exemptions or lower rates
- Distant relatives or unrelated heirs may pay up to 18% in some states
States with Inheritance Tax (2025): Only six states with inheritance tax currently levy inheritance tax: Iowa (phasing out its inheritance tax by 2025), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, each with its own exemption rules.
Real-World Implications: Why the Distinction Matters
Both Taxes Can Apply: Yes, you can get hit with both. For example, Maryland is the only state that has both estate and inheritance tax, so your estate may be taxed first, and then your beneficiaries taxed again.
Your Residency Affects the Tax Outcome: Where you live and where your property is located can determine whether these taxes apply. A Florida resident (no estate or inheritance tax) with property in Oregon (an estate tax state) may still trigger estate tax liability in Oregon.
Relationship to the Deceased Matters: State and inheritance tax rates often favor immediate family. But if you're leaving assets to a niece, friend, or caregiver, they might owe a larger share to pay the state.
Gifting and Trusts Play a Role: Smart estate planning, including lifetime gifts, irrevocable trusts, and domicile planning, can help minimize or eliminate estate/inheritance taxes. But it requires knowing the rules early.
Which States Have No Estate Tax or Inheritance Tax in 2025?
If you're planning your estate with an eye on long-term tax efficiency, location matters more than most people realize. In the U.S., both estate and inheritance taxes are imposed at the state level in addition to (or instead of) federal taxes. But not all states impose the tax, and some offer complete tax-free inheritance.
Here's a breakdown of where you're off the hook entirely in 2025:
🟢 States with No Inheritance Tax and No Estate Tax
As of 2025, 33 states with no inheritance tax or estate tax exist, meaning your assets can pass to heirs without any state-level tax consequences. These low taxes states are attractive options for estate planning.
These tax-free states include:
- Arizona
- California
- Colorado
- Florida
- Georgia
- Idaho
- Indiana
- Kansas
- Michigan
- Missouri
- Nevada
- New Hampshire
- New Mexico
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Virginia
- West Virginia
- Wisconsin
- Wyoming
...and several more.
Pro tip: These states are popular not just for sunshine and retirement, but also for passing on wealth without erosion from state death taxes.
🟡 States that Impose Estate Taxes
Twelve states + Washington, D.C. impose a state-level estate tax (but not inheritance tax):
- Connecticut
- Hawaii
- Illinois
- Maine
- Maryland has both estate and inheritance tax.
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
- District of Columbia
The estate tax exemption threshold in these states is often much lower than the federal limit, as low as $1 million in MA and OR.
🔴 States that Impose Inheritance Taxes
6 states impose an inheritance tax in 2025:
- Iowa (phasing out by 2025, completely repealed by 2025)
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
Inheritance tax rates in these states depend on:
- Your relationship to the deceased
- The amount received
- Applicable exemptions
⚠️ Bonus: States with Both Estate & Inheritance Tax
Only Maryland has both types of taxes in 2025, making it one of the most aggressive states and the district in terms of taxing intergenerational wealth transfer.
Understanding Tax Exemptions and Credits
Federal Estate Tax Exemption Amount
The federal estate tax exemption amount for 2025 is $13.61 million per individual. This means that most estates won't pay estate taxes at the federal level. However, the Internal Revenue Service has scheduled this exemption to sunset after 2025, potentially reverting to around $6-7 million per person.
State Estate Tax Exemption Amounts
State estate tax exemption amounts vary significantly. While some states with no inheritance tax or estate tax offer complete exemption, others have much lower thresholds. For example:
- Oregon: $1 million
- Massachusetts: $2 million
- Washington: $2.193 million
- Minnesota: $3 million
Tax Credit Considerations
Some states offer tax credits that can reduce your overall tax burden. Understanding both federal and state estate tax implications, as well as available tax credits, can help minimize the total tax liability.
Income Tax Implications
While estate and inheritance taxes are separate from income tax, beneficiaries should understand that inherited assets may affect their income tax rates in the tax year they receive them. Consulting with an estate planning attorney can help navigate these complexities.
How to Reduce or Avoid Estate and Inheritance Taxes (Legally)
If you're building generational wealth, estate taxes can feel like a penalty for doing the right thing. But with smart planning, you can minimize or even eliminate these taxes. Here's how high-net-worth families, founders, and even upper-middle-class households are legally reducing estate and inheritance tax exposure in 2025.
1. Establish Residency in a No-Estate-Tax State
Where you live (and more importantly, die) matters. States like Florida, Texas, and Nevada don't pay estate taxes, so if your estate is under the federal exemption, you could avoid all estate taxes completely.
But simply owning a home isn't enough.
To shift tax residency, you need to prove domicile:
- Spend the majority of the year there
- Get a new driver's license and voter registration
- Move your doctors, advisors, and bank accounts
- Cut ties with your old high-tax state
States like New York and California often audit high-net-worth exits, so the paperwork and timing need to be airtight.
2. Leverage the Federal Estate Tax Exemption (Before It Shrinks)
In 2025, you can pass on $13.61 million per person (or $27.22 million for couples) without federal estate tax. But this is temporary.
The exemption is scheduled to sunset after 2025, likely reverting to around $6–7 million per person, meaning estates that are tax-free today could face a 40% hit in 2026.
What wealthy families are doing now:
- Gifting assets today to lock in the high exemption
- Transferring appreciating assets to heirs or trusts early
- Using valuation discounts to pass more value under the cap
3. Use Annual Gift Exclusions Strategically
The annual gift tax exemption is $18,000 per person in 2025.
That means:
- A couple can gift $36,000 to each child (or grandchild) each year tax-free
- Over 10 years and 3 heirs, that's over $1 million moved outside your estate with zero paperwork or tax
- Bonus: Direct tuition and medical payments don't count toward this limit, making them powerful tools for grandparents funding education
4. Deploy Trusts That Remove Assets from Your Estate
For larger estates, advanced trusts aren't just a tool; they're essential.
Here are 3 widely used ones:
- Irrevocable Life Insurance Trusts (ILITs): Move life insurance proceeds outside your estate
- GRATs (Grantor Retained Annuity Trusts): Useful for passing on rapidly appreciating assets with minimal tax
- Charitable Trusts: Provide income during your lifetime while passing on the remainder to charity and reducing estate tax
These trusts work best when combined with legal and financial guidance; they're not DIY.
5. Work with a Tax-Focused Estate Planning Firm
Estate law is state-specific, complex, and always changing.
What a good CPA or estate planning attorney does:
- Aligns your will, trusts, and asset titling with current laws
- Projects future tax exposure based on your portfolio and state
- Prepares documentation to avoid probate and disputes
- Helps your heirs avoid a forced asset sale to pay death taxes
If your estate is likely to exceed $7 million per person after 2025, now is the time to act. You don't need to be ultra-wealthy to benefit; just be proactive.
States with the Highest Estate and Inheritance Taxes (and Why It Matters)
If you live in one of these states or even own property there, your estate could be taxed twice: once by the state and again by the federal government (if it exceeds the federal threshold). Understanding state estate tax rates and inheritance tax implications is crucial for proper planning.
Here's a breakdown of the highest state estate and inheritance tax rates in 2025:
States with Estate Taxes
(Estate tax is levied on the total value of the deceased person's estate before it's passed on.)
Important: Some states have "cliff" rules—go $1 over the exemption, and your entire estate gets taxed.
States with Inheritance Taxes
(This is taxed on the recipient, based on how closely related they are to the deceased.)
✅ Only one state, Maryland, has both estate and inheritance tax.
Why This Matters
If you're:
- A retiree thinking of relocating
- A business owner with property across states
- Someone leaving a large estate to extended family or friends
...then understanding where your assets are located and how they'll be taxed can save your heirs hundreds of thousands of dollars in state death taxes.
Tax Planning Considerations
Property Tax and Other State Taxes
When evaluating states for estate planning purposes, consider the full tax picture. Some states may have no estate tax but high property tax or sales taxes. Others may have favorable income tax rates that benefit you during your lifetime.
Estate Tax Return Requirements
When an estate tax return must be filed depends on the value of the estate and applicable exemption amounts. The Internal Revenue Service requires federal estate tax returns for estates exceeding the federal exemption, while states have their own filing requirements.
New Estate Tax Developments
Tax laws continue to evolve. What constitutes a flat estate tax structure in one state may change, and new estate tax legislation can affect planning strategies. Staying informed about these changes is crucial for effective estate planning.
Common Misconceptions About Estate and Inheritance Taxes
Estate and inheritance taxes are two of the most misunderstood parts of the U.S. tax system. While they both deal with wealth transfer after someone dies, they are fundamentally different, and confusing them can lead to costly planning mistakes. Let's clear up the most common misconceptions.
1. "Estate tax and inheritance tax are the same thing."
Wrong. Estate tax is paid by the estate before assets are distributed to heirs. Inheritance tax is paid by the individual receiving the inheritance.
In other words:
- With the estate tax, the tax bill comes out of the deceased's estate
- With inheritance tax, the beneficiary is responsible for paying it
Some states have one, some have both, and many have neither, which is why understanding your state's rules is crucial.
2. "If I don't have $13 million, estate taxes don't apply to me."
Half-true. While the federal estate tax exemption is over $13 million in 2025, state-level estate taxes often kick in at much lower thresholds. For example:
- Massachusetts and Oregon start taxing estates at just $1 million
- Some states don't adjust for inflation
If you live in a state that levied the tax and own a home, retirement accounts, and life insurance, your estate could be subject to tax even if it doesn't seem "ultra-wealthy."
3. "My state doesn't have an inheritance tax, so I'm safe."
Not necessarily. Even if your state doesn't impose an inheritance tax, you might inherit money from someone who lived in a state that does.
Example: You live in Florida (no inheritance tax), but inherit from someone in Pennsylvania—you may still owe inheritance tax to Pennsylvania.
4. "Only the super rich need to worry about estate planning."
False. Estate planning isn't just about taxes; it's about:
- Avoiding probate delays
- Choosing guardians for children
- Protecting assets for heirs
- Planning for incapacity or long-term care
Even modest estates can benefit from trusts, beneficiary designations, and smart tax moves. And if you own property in multiple states, things get even more complex.
5. "Federal law overrides state inheritance and estate tax rules."
Not at all. Each state has the power to levy its taxes, and state laws can coexist with or stack on top of federal law.
That means:
- You could owe no federal tax, but still face a state-level tax bill
- You need to understand both layers to avoid surprises
Understanding the Tax Chart
A comprehensive tax chart showing estate tax rates and state inheritance tax rates can help you understand the full scope of potential tax liability across different jurisdictions.
Conclusion: The Sooner You Plan, the More You Preserve
Estate and inheritance taxes aren't just for the ultra-wealthy. Even modest estates can trigger tax obligations in certain states, and without the right plan, your family could end up with more questions than answers.
By understanding where these taxes apply and how to structure your assets, you can safeguard your legacy and ensure the people you care about receive the full benefit of what you've built. Whether you need to pay income tax during your lifetime or your heirs will pay a state inheritance tax, proper planning makes all the difference.
Let Madras Accountancy Be Your Planning Partner
At Madras Accountancy, we go beyond tax filing. Our team helps you take control of your finances with personalized strategies that span estate planning, tax optimization, and proactive business accounting, so you're never caught off guard by a state inheritance law or federal change.
Whether you're thinking ahead for your family or preparing your business for succession, we make sure your numbers work for your future.
👉 Start a conversation with us at MadrasAccountancy.com, and get clear, human advice that helps you plan with confidence.
