Estate Tax Explained: Will Your Family Actually Owe Anything?

The estate tax is the most feared and least relevant tax in personal finance. For the vast majority of American families, the federal estate tax is a non-issue — fewer than 1 in 1,000 estates pays a dollar of it. But the federal number isn't the whole story. Seventeen states impose their own estate or inheritance taxes, some with thresholds as low as $1 million. Here's how to figure out where your family actually stands.

How federal estate tax works

The federal estate tax is a tax on the value of everything you own when you die — real estate, investments, business interests, retirement accounts, life insurance proceeds, even household goods. The total is your gross estate.

You get to subtract debts, funeral expenses, charitable bequests, and anything left to a US-citizen spouse (the marital deduction is unlimited). What's left is your taxable estate.

The taxable estate gets compared against the federal exemption, which for 2026 sits at roughly $14 million per person — meaning a married couple can pass roughly $28 million tax-free using portability. Anything above the exemption is taxed at 40 percent.

The actual numbers: in 2024, fewer than 4,000 federal estate tax returns owed any tax, out of roughly 3 million deaths. If your net worth is under $10 million per person, federal estate tax simply will not apply to you. The IRS publishes current thresholds and rules in Form 706 instructions.

The state estate tax surprise

The federal threshold is high. State thresholds are not. As of 2026, twelve states and DC impose a state-level estate tax, and six states impose an inheritance tax (a different beast — see below):

State estate tax (the estate pays): - Oregon: $1 million exemption - Massachusetts: $2 million exemption - Rhode Island: ~$1.8 million exemption - Washington: ~$2.2 million exemption - New York: ~$7 million exemption (with a notorious "cliff") - Connecticut, Illinois, Maine, Maryland, Minnesota, Vermont, Hawaii, DC: $2M–$13M exemptions

Inheritance tax (the heir pays): - Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania

Maryland is the only state with both an estate tax and an inheritance tax.

If you live in or own real property in any of these states, you can be exposed at numbers well below the federal exemption. Oregon's $1 million threshold catches modest homes plus a retirement account.

Estate tax vs. inheritance tax — the actual difference

These get conflated constantly. They are not the same.

• **Estate tax**: paid by the estate before distributions. The heirs receive what's left.
• **Inheritance tax**: paid by the heir who receives the asset. Rates often depend on the relationship — spouses and children typically pay zero or low rates, while siblings, nieces, nephews, and non-relatives pay higher rates (up to 18 percent in Pennsylvania for non-relatives).

A Pennsylvania resident who leaves $200,000 to a niece owes no estate tax but the niece owes 15 percent inheritance tax — $30,000 — to the Pennsylvania Department of Revenue.

The portability provision (federal)

Married couples often think they can ignore estate planning because the unlimited marital deduction wipes out estate tax at the first death. True — but the first spouse's federal exemption is then potentially wasted unless the surviving spouse files a federal estate tax return (Form 706) electing portability within nine months of death.

Portability lets the surviving spouse use the deceased's unused exemption, effectively doubling the family's lifetime federal shelter. Miss the filing window and the first exemption is gone. This is one of the most common high-stakes errors in estate administration — the CPA needs to file Form 706 even when no tax is owed, just to lock in portability.

Gift tax — the same exemption, different mechanic

The federal estate and gift tax share a single lifetime exemption. Gifts above the annual exclusion ($18,000 per recipient in 2024–25, adjusted annually) eat into the lifetime exemption. So a $1 million gift to a child doesn't trigger gift tax — it just reduces the donor's remaining estate-tax shelter by $982,000.

State gift taxes have largely been repealed; Connecticut is the only state that still imposes one.

What actually causes federal exposure

Most families crossing the $14 million federal threshold get there via:

• Closely held business interests that appreciate sharply
• Real estate portfolios in high-value markets
• Concentrated stock from a tech or finance career
• Large life insurance policies (insurance proceeds are includable unless owned by an irrevocable life insurance trust)

If you fit one of these profiles, this article is the start of a conversation with a board-certified estate planning attorney, not the end of one. The tools for high-net-worth planning — GRATs, SLATs, ILITs, dynasty trusts, charitable lead trusts — are highly fact-specific and beyond the scope of an online guide.

The 2026 sunset risk

The 2017 Tax Cuts and Jobs Act roughly doubled the federal exemption. Without congressional action, that doubling is scheduled to sunset, bringing the exemption back to roughly $7 million per person (inflation-adjusted from the 2017 baseline). Congress may extend it; they may not. Families with net worth in the $7M–$14M range should treat this as a real planning trigger rather than wait and see.

Practical moves for the rest of us

If you are well under any threshold, the estate tax is not your problem. Focus on the basics: a will or trust, beneficiary designations, powers of attorney, a healthcare directive, and a current asset list. Our common estate planning mistakes guide covers the much-more-likely ways families lose money.

If you live in Oregon, Massachusetts, or another low-threshold state and own a paid-off home plus a decent retirement account, run the numbers. A simple AB trust structure built into a revocable living trust can preserve both spouses' state exemptions. Talk to a local CPA or estate attorney — this is a $50,000–$200,000 decision and worth a consultation.

What VoiceWill™ does about tax

VoiceWill™'s voice intake asks about your state of residence, real property locations, and approximate net worth. If you screen as potentially exposed under your state's threshold or the federal exemption, we flag it explicitly and route you to a vetted estate attorney through our concierge service — we do not draft complex tax-driven trusts in software.

The bottom line

For 99.8 percent of families, federal estate tax is irrelevant. For families in low-threshold states, the math is closer than it looks — a paid-off home plus a 401(k) crosses Oregon's threshold for a single homeowner. Run your state's number against your actual balance sheet. If you are clear, stop worrying. If you are close, get a one-time professional opinion before the next big asset appreciation moves you into the taxable zone.