US Estate and Gift Tax Guide: Exemptions, Rates, and Planning

Estate and gift tax planning is about one thing: making sure the wealth you spent a lifetime building goes to the people and causes you care about — not to the government. The good news is that the vast majority of Americans will never owe a dollar of federal estate tax, because the exemption is now extraordinarily high. The catch is that several states impose their own estate or inheritance taxes with far lower thresholds, and the gift-tax rules interact with the estate tax in ways that trip up even sophisticated families. This guide covers the 2026 federal rules, the state-level landscape, and the core planning strategies.

Estate Tax vs. Gift Tax vs. Inheritance Tax

These three terms are constantly confused, so let's define them clearly:

• Estate tax is paid by your *estate* (before assets are distributed) based on the total value of what you leave behind.
• Gift tax is paid by the *giver* on large transfers made *during your lifetime*. It exists to stop people from giving everything away before death to dodge the estate tax — so the two share a single unified exemption.
• Inheritance tax is paid by the *heir* who receives the money, and only a few states impose it. There is no federal inheritance tax.

Federal Estate & Gift Tax (2026)

• Lifetime unified exemption: approximately $15 million per individual (indexed for inflation)
• Annual gift exclusion: $19,000 per recipient, per year — you can give this to any number of people with no tax and no impact on your lifetime exemption
• Top rate: 40% on amounts above the exemption
• Marital portability: a surviving spouse can inherit the deceased spouse's unused exemption, effectively giving a married couple roughly $30 million of combined shelter (a "portability election" must be filed on Form 706)
• Unlimited marital deduction: transfers between U.S.-citizen spouses are entirely tax-free

Because the exemption is so high, fewer than 0.1% of estates owe any federal estate tax. For most families, the real risk is at the state level.

States With Their Own Estate Tax

Twelve states plus the District of Columbia levy an estate tax, and several have thresholds *far* below the federal level:

Connecticut (~$13.99M), Hawaii (~$5.49M), Illinois ($4M), Maine (~$6.41M), Maryland ($5M), Massachusetts ($2M), Minnesota ($3M), New York (~$6.94M), Oregon ($1M), Rhode Island (~$1.77M), Vermont ($5M), Washington (~$2.19M), and Washington D.C. (~$4.71M).

Oregon and Massachusetts start at just $1M and $2M — thresholds a typical home-owning retiree with a decent 401(k) can easily exceed. Watch out too for New York's estate-tax "cliff": exceed the exemption by more than 5% and the *entire* estate becomes taxable, not just the excess.

States With Inheritance Tax

Six states tax the people who *receive* an inheritance, with rates that often depend on how closely related the heir is:

Iowa (0–6%, being phased out), Kentucky (4–16%), Maryland (0–10%), Nebraska (1–18%), New Jersey (11–16%), and Pennsylvania (4.5–15%).

Spouses and often children are usually exempt or taxed at low rates; distant relatives and non-relatives face the highest brackets. Maryland is the only state with *both* an estate tax and an inheritance tax.

Core Planning Strategies

1. Relocate your domicile to a state with no estate or inheritance tax (Florida, Texas, Nevada, and most no-income-tax states)

2. Use the annual gift exclusion aggressively — a couple can give $38,000 per recipient per year ($19,000 each), moving substantial wealth out of their estate over time with zero tax

3. Pay tuition and medical bills directly — payments made straight to a school or medical provider are unlimited and tax-free, on top of the annual exclusion

4. Establish an irrevocable trust (such as an ILIT for life insurance) to remove assets from your taxable estate

5. Combine spousal exemptions by filing a portability election on the first spouse's death

6. Make charitable gifts — bequests to qualified charities are fully deductible

A Word of Caution

Estate planning is genuinely state- and situation-specific, and the federal exemption is scheduled to be revisited by Congress in the coming years. The strategies above are starting points — for anything beyond the annual gift exclusion, work with an estate attorney or CPA who can draft documents that hold up and file the required IRS forms correctly.

Summary

Most people will never owe federal estate tax thanks to the ~$15 million exemption, but state estate and inheritance taxes are the real trap — some kick in at just $1–2 million. Know your state's rules, use the annual gift exclusion and direct tuition/medical payments to shrink your estate over time, and consider relocating your domicile if you live in a high-threshold state. For larger estates, professional guidance is essential.