Educational information, not individual financial advice.
Key Takeaways
Federal estate tax gets the headline attention, but state estate and inheritance taxes often affect people whose estates are below the federal exemption. Some state thresholds are as low as $1M, which captures many middle-class homeowners with retirement savings.
| State | Exemption | Top rate |
|---|---|---|
| Connecticut | $13.99M | 12% |
| DC | $4.71M | 16% |
| Hawaii | $5.49M | 20% |
| Illinois | $4M | 16% |
| Maine | $6.8M | 12% |
| Maryland | $5M | 16% |
| Massachusetts | $2M | 16% |
| Minnesota | $3M | 16% |
| New York | $6.94M | 16% |
| Oregon | $1M | 16% |
| Rhode Island | $1.8M | 16% |
| Vermont | $5M | 16% |
| Washington | $2.19M | 20% |
Figures as of 2025; some states index to inflation, others don't.
Inheritance tax is paid by heirs, not the estate, and rates vary by relationship to the deceased:
New Jersey abolished its estate tax in 2018 but kept inheritance tax.
Massachusetts and Oregon have particularly low estate tax thresholds at $2M and $1M. A person who owns a $800,000 home, $1M in retirement accounts, and $300,000 of other assets is already over the Oregon threshold.
Worse, both states historically used a "cliff" structure where once you crossed the exemption, tax applied to the entire estate, not just the amount above the exemption. Massachusetts reformed this in 2023; Oregon remains a cliff as of early 2026.
This creates planning quirks — a $999,000 Oregon estate pays $0; a $1,000,001 Oregon estate may pay substantial tax on the full amount. Planning may aim to keep the estate below the threshold through gifting, charitable bequests, or other strategies.
Most states with estate tax use their own exemption, not the federal $15M. Some use a fixed dollar amount (Oregon $1M); others float with CPI (Maine, Maryland).
Connecticut is the only state whose exemption matches the federal exemption — but only because the state chose to peg it there.
This means estates between the state exemption and the federal exemption can face state estate tax even when no federal tax applies. A $10M Washington estate would owe no federal tax ($15M federal exemption) but face significant Washington estate tax ($2.19M exemption, 10–20% rates).
State estate tax applies based on your "domicile" at death — your legal home. Not the same as residency; someone can have legal residency for tax purposes in one state while being domiciled in another.
Factors determining domicile:
Leaving a high-estate-tax state can be complicated. States like New York are aggressive about asserting domicile over people who claim to have moved away, especially if they maintain homes, bank accounts, and ties.
Real estate is generally taxed based on where the real estate is located, not where the owner is domiciled. A Washington resident who owns a Massachusetts vacation home may owe Massachusetts estate tax on the Massachusetts property even if their domicile is Washington.
Each state's tax applies only to its portion of the estate, so this typically means ancillary probate in multiple states — another reason to consider a revocable living trust for out-of-state real estate.
Lifetime gifts generally reduce the federal taxable estate. State gift tax rules vary:
For Connecticut residents, gifting doesn't avoid Connecticut tax the way it can in other states.
For retirees with significant wealth in high-tax states, moving to a no-estate-tax state (Florida, Texas, Nevada, Arizona, etc.) can save substantial tax. Considerations:
Estate tax savings from relocation can be substantial but should be real, not on paper only.
Horizons can apply state-level estate tax rules based on your configured domicile. If you're modeling a relocation scenario, setting the domicile change at a specific month shifts the estate tax assumptions from that point forward — giving you a before-and-after view of the estate tax impact.
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