Insights

The $15 Million Myth: Why State Death Taxes Still Bring Families to the Planning Table

By Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA · October 28, 2026

Many clients who are not federal estate tax clients are very much state death tax clients. The planning trigger comes earlier than most advisors think.

With the federal estate tax exemption now at $15 million per person, many advisors understandably focus their estate planning conversations on the ultra-high-net-worth.¹ That focus misses a much larger group: families who are nowhere near the federal exemption and who still face a real state estate or inheritance tax. Many clients who are not federal estate tax clients are very much state death tax clients.

Two numbers matter

I keep a chart of every jurisdiction that imposes a state estate tax, an inheritance tax, or both, ranked two ways: by the top applicable rate and by the exemption or threshold amount. Both numbers matter, and they answer different questions.

The top rate shows the severity of the tax. Several states impose top estate or inheritance tax rates of 16 percent or more, and Washington has gone higher still. That is a meaningful tax even for a family that will never owe a dollar of federal estate tax.

The exemption amount shows the size of the planning opportunity, because it tells you how early the planning conversation should start. A few examples of state thresholds as they stand today:²

• Oregon: $1 million
• Massachusetts: $2 million
• Minnesota and Washington: $3 million
• Illinois: $4 million
• Maryland and Vermont: $5 million

A client with a $3 million, $5 million, $7 million, or $10 million estate may be well below the federal exemption and still have a state death tax problem that can run into six or seven figures.

Inheritance taxes work differently

Estate taxes are imposed on the decedent's estate before distribution. Inheritance taxes are imposed on the beneficiary, and the rate usually depends on the beneficiary's relationship to the decedent. Pennsylvania, for example, imposes no inheritance tax on transfers to a surviving spouse, a lower rate on transfers to lineal descendants, and a higher rate on transfers to siblings and unrelated beneficiaries. Maryland imposes both an estate tax and an inheritance tax. The mechanics change who pays, and sometimes they change what the plan should look like.

An earlier planning trigger

Properly structured irrevocable trusts are an important part of planning around state death taxes. In appropriate cases they remove future appreciation, and sometimes existing assets, from the taxable estate for federal purposes and, depending on the state and the structure, for state estate or inheritance tax purposes as well. The classic example is a client who lives in a high-tax, low-exemption state and holds appreciating assets that the family does not expect to spend.

That kind of planning is especially relevant for clients who want to:

• Reduce state death tax exposure without waiting until the federal exemption is in sight
• Shift future appreciation to the next generation
• Improve asset location across the family
• Add asset protection
• Build a durable multigenerational structure
• Use modern directed trust and dynasty trust planning in a state such as South Dakota

Domicile and situs also matter

State death taxes turn on domicile for intangible assets and on the location of real property and tangible property. A client who lives in Florida, which has no estate or inheritance tax, can still owe Oregon or Pennsylvania tax on a vacation home or a farm located there. Planning for those assets, often through an entity or a trust, is a separate conversation from planning for the client's domicile.

The planning conversation should not stop at the federal exemption. State death taxes bring many more families to the table than most advisors realize, and the families who benefit most are the ones who start before the numbers get large.

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