Multi-State Estate Tax Planning: Navigating 13 Different Tax Regimes

The State Estate Tax Landscape in 2026

While much of the estate planning conversation focuses on the federal estate tax—with its current $15 million exemption (made permanent by the One Big Beautiful Bill Act in 2025)—a growing number of high-net-worth clients face significant state-level estate or inheritance taxes that can catch even experienced attorneys off guard. As of 2026, 12 states and the District of Columbia impose an estate tax, and 5 states impose an inheritance tax (with Maryland imposing both). Iowa eliminated its inheritance tax effective January 1, 2025.

The states with an estate tax are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington, plus the District of Columbia. The states with an inheritance tax are: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Each has its own exemption threshold, rate schedule, and planning pitfalls.

For attorneys with clients who own property or maintain domicile in multiple states, understanding these overlapping regimes is essential. A client domiciled in Oregon who owns real property in Washington faces two state estate taxes with very different exemption amounts and rate structures.

Exemption Thresholds: The Wide Disparity

State estate tax exemptions range from $1 million (Oregon and Massachusetts) to over $13 million (Connecticut, which has tied its exemption to the federal amount). This means a $2 million estate that is fully exempt at the federal level and in most states could still face estate tax in Oregon or Massachusetts.

Washington's exemption is approximately $2.193 million (indexed for inflation). Oregon's $1 million exemption is notable because it is not indexed for inflation and has not been adjusted in years, meaning that inflation alone pushes more estates above the threshold each year. Massachusetts uses a $2 million exemption but applies a “cliff” structure that creates particularly harsh results for estates just above the threshold.

The District of Columbia has progressively increased its exemption and currently ties it to the federal amount, effectively removing most estates from DC estate tax liability. Illinois uses a $4 million exemption. New York's exemption is approximately $6.94 million but includes a notorious “cliff” that can result in the entire estate being taxed if it exceeds 105% of the exemption.

The Cliff Effect: New York and Massachusetts

Two states deserve special attention because of their cliff effect. In New York, if the taxable estate exceeds 105% of the exemption (approximately $7.29 million for 2026), the exemption is entirely eliminated and the entire estate is subject to tax from the first dollar. This means an estate of $7.28 million pays zero New York estate tax, while an estate of $7.30 million could owe over $400,000. The marginal effective tax rate in this cliff zone can exceed 100%.

Massachusetts uses a different but equally punishing structure. While the exemption is $2 million, it functions as a credit rather than a true exemption. If the estate exceeds $2 million, tax is calculated on the entire estate value starting from the first dollar, and then a credit equal to the tax on $2 million is applied. This results in much higher effective tax rates for estates in the $2 million to $3 million range than the nominal rate schedule would suggest.

Attorneys advising clients with estates near these cliff thresholds have an ethical obligation to plan proactively. Strategies such as lifetime gifting, charitable bequests, or establishing irrevocable trusts can reduce the taxable estate below the cliff threshold, saving hundreds of thousands of dollars in tax. But these strategies only work if you identify the cliff risk before the client dies.

Inheritance Tax: A Different Animal

While estate taxes are levied on the estate itself, inheritance taxes are imposed on the recipients based on their relationship to the decedent. Close relatives (surviving spouses, children) typically receive full exemptions or reduced rates, while distant relatives and non-related beneficiaries face higher rates.

Pennsylvania's inheritance tax illustrates this distinction: transfers to surviving spouses are exempt, transfers to direct descendants are taxed at 4.5%, transfers to siblings at 12%, and transfers to all others at 15%. These rates apply to the entire amount transferred to each beneficiary class, not just amounts above an exemption.

New Jersey eliminated its estate tax in 2018 but retained its inheritance tax, which applies to transfers to anyone other than Class A beneficiaries (spouses, children, grandchildren, parents). Class C beneficiaries (siblings, sons-in-law, daughters-in-law) receive a $25,000 exemption and pay 11–16% on amounts above that. Class D beneficiaries (everyone else) pay 15–16% with no exemption.

For Maryland, which imposes both an estate tax and an inheritance tax, the interaction between the two creates particularly complex planning considerations. The estate tax exemption is tied to the federal exemption, while the inheritance tax rates vary by beneficiary class. Any inheritance tax paid is credited against the estate tax, but the two calculations must be run separately.

Multi-State Domicile and Property Issues

Clients who own real property in multiple states may owe estate tax in each state where property is located, regardless of their domicile. A Massachusetts resident who owns a vacation home in Oregon will have the Oregon property subject to Oregon estate tax and the entire estate (including the Oregon property) subject to Massachusetts estate tax. Most states provide a credit or proportional allocation to avoid full double taxation, but the relief is not always complete.

Domicile disputes are another common issue. A client who splits time between Florida (no estate tax) and New York (estate tax) may face a domicile audit from New York's Department of Taxation and Finance. New York is particularly aggressive in challenging claimed domicile changes, examining factors like where the client votes, where they receive mail, where their doctors and advisors are located, and how many days they spend in each state.

For attorneys advising clients on domicile planning, the key is documentation. A formal domicile change should be accompanied by driver's license transfer, voter registration change, updated wills and trusts reflecting the new domicile, and meticulous records of time spent in each state. Half measures invite audits.

Using Technology for Multi-State Tax Analysis

Manually calculating estate tax exposure across multiple states is time-consuming and error-prone. Each state uses a different rate schedule, different exemption amounts, and different rules for crediting taxes paid to other states. For a client with property in three states, the analysis can involve running three separate tax calculations and then applying the credit rules.

Our estate tax calculator handles all 50 states plus DC, applying current exemption thresholds, rate schedules, and cliff provisions. You enter the estate value and select the relevant state, and the calculator returns a detailed tax estimate. For multi-state scenarios, you can run separate calculations for each state and advise the client on the total exposure.

Try the free calculator on madeforlaw.com to explore all 50 states. Pro users get unlimited calculations, PDF reports, and embeddable calculators for their firm website to attract estate planning clients. Pro starts at $49/month or $42/month billed annually ($499/year).

Planning Takeaways for 2026

With the federal estate tax exemption scheduled to revert to approximately $7 million (adjusted for inflation) after 2025 under the sunset provision of the Tax Cuts and Jobs Act, state estate tax planning is becoming more relevant, not less. Even if Congress extends the current exemption, states set their own thresholds—and most are far lower than the federal amount.

Attorneys should review every estate planning client's exposure to state-level taxes, identify any cliff risks, and implement planning strategies while the client is alive and options are still available. A five-minute estate tax calculator run today can save your client hundreds of thousands of dollars in tax.