Estate Tax: Rates, Exclusions, and Impact on Gifts and Inheritances What is an estate tax? An estate tax is a tax on the transfer of a deceased person’s estate. It is assessed on the estate’s fair market value (FMV) at death, and applies only to the portion that exceeds a statutory exclusion (exemption) amount. Estate taxes may be levied by the federal government and by some states. Key points
The federal estate tax applies only when an estate’s combined gross assets and prior taxable gifts exceed the federal exclusion.
Assets transferred to a surviving spouse are generally exempt (unlimited marital deduction).
* Recipients may owe a separate inheritance tax in some states. Explore More Resources
Federal estate tax (2024–2025)
* 2024 federal exclusion: $13.61 million ($13,610,000).
* 2025 federal exclusion: $13.99 million ($13,990,000).
Estates with combined gross assets and prior taxable gifts above these thresholds must file a federal estate tax return and may owe tax on the amount above the exclusion.
State estate taxes Some states impose their own estate taxes with lower exclusion amounts than the federal government. An estate that escapes federal tax can still be subject to state estate tax. Estates under $1 million are not taxed in any jurisdiction. States with estate taxes (thresholds as of 2025)
Connecticut: $13,990,000 (matches federal exemption)
District of Columbia: $4,873,200
Hawaii: $5,490,000
Illinois: $4,000,000
Maine: $6,800,000
Maryland: $5,000,000
Massachusetts: $2,000,000
Minnesota: $3,000,000
New York: $7,160,000
Oregon: $1,000,000
Rhode Island: $1,802,431
Vermont: $5,000,000
* Washington: $2,193,000 Explore More Resources
Gift tax and tax‑planning basics Gifting before death can reduce an estate’s taxable value, but the federal gift tax rules apply to lifetime gifts. Annual gift exclusion
2024 annual exclusion: $18,000 per recipient.
2025 annual exclusion: $19,000 per recipient.
You can give up to these amounts to any number of recipients each year without reducing your lifetime exclusion or triggering gift tax. Explore More Resources
Lifetime gift exclusion
Gifts above the annual exclusion are reported on IRS Form 709 and reduce your lifetime exclusion (the same pool used for the estate tax exemption). Example: if you gave $79,000 in 2024, the annual exclusion would shelter $18,000 per recipient; the remaining $61,000 would be reported on Form 709 and would reduce your lifetime/estate exclusion by $61,000 (reducing a $13,610,000 exclusion to $13,549,000 in that example). The IRS treats transfers as gifts whether intended as such or not, so planning and reporting are important for high‑value transfers. Explore More Resources
Estate tax vs. inheritance tax
* Estate tax: levied on the deceased person’s estate before distribution to beneficiaries.
* Inheritance tax: levied on beneficiaries after they receive assets; the beneficiary—not the estate—pays it.
There is no federal inheritance tax. State inheritance taxes vary by state, value of the inheritance, and the beneficiary’s relationship to the decedent. States (current status)
As of 2025, inheritance taxes are levied by:
Kentucky (small exemptions; rates vary)
Maryland (also has an estate tax)
Nebraska
New Jersey
* Pennsylvania
Note: Iowa’s inheritance tax was repealed effective Jan. 1, 2025. Explore More Resources
Typical thresholds (examples)
Kentucky: $500–$1,000 (varies by class)
Maryland: $50,000–$100,000 (varies by relationship/class)
Nebraska: $25,000–$100,000
New Jersey: $25,000
Pennsylvania: $3,500 Common exemptions and rules
Surviving spouses are exempt from inheritance tax in all these states.
Domestic partners are exempt in New Jersey.
Nebraska and Pennsylvania exempt descendants who are 21 or younger.
* Life insurance paid directly to a named beneficiary is usually not subject to inheritance tax (life insurance payable to the estate typically is included in the estate for estate tax purposes). Explore More Resources
What counts as an estate? An estate includes all assets and interests a person owns or controls at death: real property, personal property, securities, cash, business interests, and other holdings. The taxable value is based on FMV at death, net of allowable deductions. Deductions that reduce estate tax Common deductions that can lower estate tax liability include:
Debts and mortgages owed by the decedent
Estate administration expenses and losses
Property passing to a surviving spouse (marital deduction)
Charitable bequests to qualifying charities
* For qualifying cases, reduced valuations for certain closely held businesses or farms Explore More Resources
Brief history and terminology The U.S. first enacted an estate tax in 1797. The modern federal estate tax system dates from 1916. The estate tax is sometimes called a “death tax” in public discussion. Conclusion Estate tax applies to the transfer of an estate that exceeds statutory exclusions. For 2024 and 2025, federal exclusions are $13.61 million and $13.99 million respectively. State estate and inheritance taxes can introduce additional exposure depending on where the decedent lived and where beneficiaries reside. For high‑value estates, careful estate and gift‑tax planning—using annual exclusions, lifetime gifting strategies, and available deductions—can materially reduce tax liability and simplify the transfer of assets to heirs. Explore More Resources