The federal estate tax is a tax on a person’s assets upon their death. It doesn’t apply to all estates, only to those with assets valued above a specific threshold, called an exemption limit. The Tax Cuts and Jobs Act of 2017 increased the exemption limit from $5.49 million to $11.18 million for individuals and double for married couples. As the limit is indexed to inflation, it increased to $12.92 million in 2023 and will be $13.61 million in 2024. Anything above the limit gets taxed on a graduated scale that currently starts at 18% and tops off at 40%.

In addition to the federal tax, some estates may be subject to a state tax. Twelve states plus the District of Columbia have their own estate taxes as of 2023. Estates in these states are more likely to see the impact of taxation because the exemption limits are typically much lower than the federal limit. With that said, it’s beneficial to familiarize yourself with your state’s tax laws. Here, we examine the details of state-specific estate taxes to help you understand their structures.

Key Takeaways

• Estate taxes don’t take effect unless an estate exceeds a minimum value threshold. Only the amount above the threshold (called an exemption limit) is taxable according to the applicable tax rate.
• State-specific estate taxes are charged based on the state where an individual lived at the time of their death. 
• Generally, in states with their own estate taxes, one’s estate tax bill gets subtracted from the total value of their taxable estate, which decreases the odds of owing the federal estate tax.
• Twelve states plus the District of Columbia have their own estate taxes. The thresholds and tax rates vary.
• The twelve states with state-specific estate taxes are Connecticut, Hawaii, Illinois, Maine, Massachusetts, Maryland, New York, Oregon, Minnesota, Rhode Island, Vermont, and Washington.
• The current inflation-indexed exemption limit is set to expire at the end of 2025. If it does, the federal limit will revert to the pre-2017 calculation, adjusted for inflation, which may affect certain state-specific limits as well. 

How Do Estate Taxes Work?

All estate taxes, whether on the federal or state level, generally work in the same way. There’s a minimum value threshold an estate must exceed for the tax to apply. If an estate is worth enough to trigger the tax, the estate owes money on its assets before they pass on to the beneficiaries. 

The estate’s valuation is based on current fair market values, not on the prices originally paid for assets, and any assets bequeathed to a surviving spouse don’t count toward the estate’s total value. A surviving spouse can also take advantage of a provision called portability, whereby the decedent’s unused exemption amount transfers to the survivor. So, if the decedent had separate assets worth $8 million, they’d have a $4.92 million difference between their used exemption and remaining exemption. Their surviving spouse could then absorb that $4.92 million into their separate estate, increasing their total individual exemption limit to $17.84 million.

The applicable tax rate depends on the estate’s value above the exclusion threshold. On the federal level, the rates for 2023 are:

As for state estate taxes, these are generally charged depending on the state where an individual lived at the time of their death. The thresholds and rates are state-specific. If a particular estate exceeds both the applicable state threshold and the federal threshold, then taxes are owed at both levels. However, states with their own estate taxes generally subtract the tax bill from the estate’s total value, which may bring the valuation below the federal threshold. In that case, only the state-level tax is levied.

Resident vs. Nonresident Estates

The applicability of state-specific estate taxes generally depends on where an individual was living at the time of their death. The taxed estate in that case is called a resident estate. However, some people also own assets in a state they don’t live in. Those assets make up one’s nonresident estate. Both resident and nonresident estates are subject to state-specific estate taxes if they exceed the exemption limit.

What States Have Their Own Estate Taxes?

The following 12 states and one district have their own estate taxes. Read on to learn about the thresholds, rates, and conditions associated with their respective tax laws.

Connecticut

The Connecticut estate tax exemption limit matches the federal limit of $12.92 million. The state previously taxed eligible estates at rates ranging from 10.8% to 12%, but it now levies a flat-rate tax of 12%. 

District of Columbia

In 2023, the exemption limit in the District of Columbia is $4,528,800 per individual, a $274,000 increase from the previous year. The larger amount is due to an annual cost-of-living adjustment, so expect it to rise with inflation in 2024. The tax rate ranges from 11.2% to 16%. Of note, the District of Columbia doesn’t recognize the provision of portability.

Hawaii

The exemption limit in Hawaii in 2023 is $5.49 million. The tax rate starts at 10% and tops off at 20%. 

Illinois

The Illinois estate tax exemption limit occupies the lower end of the spectrum at $4 million. The state’s graduated estate tax rate starts at 0.8% and peaks at 16%. Owing to a system of tax credits, estates owe nothing on the first $40,000 above the exemption limit. Illinois also doesn’t recognize portability.

Maine 

The 2023 estate tax exemption limit in Maine is $6.41 million. There are only three estate tax brackets in the state: 8% for taxable estates up to $3 million above the exemption limit, 10% for those up to $6 million, and 12% for those above $6 million. There is no portability in Maine.

Massachusetts

At $1 million, Massachusetts shares the title for lowest state-specific estate tax limit. The tax rates are similar to those of Illinois. A significant caveat is that estate tax in Massachusetts applies to the whole estate, not just a taxable amount above the threshold. To illustrate, if you have an estate worth $2 million, the tax would be levied against all $2 million, not just the $1 million that exceeds the exemption limit. Here, too, there is no portability.

Maryland

The estate tax exemption limit in Maryland is $5 million in 2023. As in Illinois and Massachusetts, the tax rate ranges from 0.8% to 16%. 

New York

In the state of New York, the 2023 estate tax exemption limit is $6.58 million. Tax rates range from 3.06% to 16%. 

New York’s estate tax law includes a 5% cliff. Estates that exceed the exemption limit by up to 5% owe taxes only on the amount above the limit. However, those that exceed the cliff owe taxes on the entire estate. To illustrate, imagine an estate valued at $6.77 million. That exceeds the exemption limit by approximately 3%, which is under the cliff. Therefore, only a little over $197,000 is taxable. If the estate were worth $7 million, though, that would be over the cliff, so all $7 million would be taxable.

New York State doesn’t recognize portability between spouses.

Oregon

Oregon is another state with a low exemption limit of $1 million. The tax rate ranges from 10% to 16%.

Minnesota

The estate tax exemption limit in Minnesota is $3 million. There are five tax rate brackets for estates that exceed the limit. The lowest tax rate is $13 million for estates valued up to $7.1 million. The highest tax rate is 16% for estate values that exceed $10.1 million. The estate tax exemption limit is not portable in Minnesota.

Rhode Island

In Rhode Island, the estates of decedents who pass away in 2023 have an estate tax exemption limit of $1,733,264. Estates that exceed the limit are taxed at rates that range from 0.8% to 16%. For those with assets valued below $1.3 million, the executor or personal representative of the estate must complete and file Form RI-706 to verify no tax is owed. The exemption limit is not portable.

Vermont

In Vermont, the estate tax exemption limit has been $5 million since 2021. Unlike most of the other states with their own estate taxes, Vermont charges a flat tax rate of 16% to all taxable estates. Any gifts given within two years of a decedent’s passing are included as part of the taxable estate. The exemption limit is not portable.

Washington

The estate tax exemption limit in Washington State is $2.193 million, and it will remain so until the end of 2024. The tax rate begins at 10% for estates valued up to $1 million above the limit. The highest-value estates (at least $9 million over the threshold) get taxed at 20%. The limit is not portable.

The Future of Estate Tax Exemption Limits

As the Tax Cuts and Jobs Act is set to expire at the end of 2025, so are items like the current indexed tax rate exemption limit. Though this pertains to the federal limit, there may be implications at the state level as well, particularly in states with higher limits (such as Connecticut). 

Given the approaching termination of the Tax Cuts and Jobs Act, you may want to consider seeking expert support with estate tax and legacy planning. Reach out to us at Anderson Advisors for a free 45-minute estate-planning strategy session to discover how we can help your family avoid probate and receive their assets. Complete our online form or call 800-706-4741 to get started today.