Moving a Trust Does Not Move the Estate Tax. A Completed Gift Does.
Seventeen jurisdictions impose an estate or inheritance tax in 2026. Changing where a trust is administered changes none of them. What changes the state estate tax base is the same thing that changes the federal one.
Charts of state estate and inheritance taxes are useful, and advisors should have one. In 2026, seventeen jurisdictions impose an estate tax, an inheritance tax or both, with thresholds that run from $1 million in Oregon to $15 million in Connecticut and top rates that reach 20 percent.1 But a chart tells an advisor where exposure exists. It does not say what determines whether a given client is exposed, and a reader thinking about South Dakota trusts can draw the wrong inference: that moving a trust to South Dakota removes state estate tax.
It does not.
What state estate tax follows
State estate tax follows the decedent's domicile at death, and it separately reaches real property and tangible personal property located in the taxing state, whatever the owner's domicile. Moving the administration of a trust to South Dakota changes neither of those. A New York resident whose revocable trust is administered in Sioux Falls still has a New York estate.
What actually moves the needle
What changes the result is a completed gift. Assets transferred to an irrevocable trust leave the grantor's federal gross estate. Because every one of the seventeen jurisdictions computes its tax from the federal gross estate, those same assets leave the state estate tax base at the same time. The federal result and the state result are not two separate outcomes. They are one outcome, produced by the same transfer. The word irrevocable is doing deliberate work in that sentence: a revocable trust, including a revocable community property trust, keeps the assets in the gross estate at both levels, and what it delivers is a different benefit, the basis adjustment at the first spouse's death, which should never be described as estate tax exclusion.
Timing matters, because a few states pull recent gifts back in. New York adds back taxable gifts made within three years of death, and a 2025 amendment extends that addback to decedents dying before January 1, 2032.2 Minnesota applies a comparable three-year lookback.3 Connecticut imposes its own gift tax.4 None of these changes the principle, but they do mean that a gift made late is worth less than a gift made early.
The notes advisors most often miss
- Washington. The top rate went to 35 percent for deaths from July 1, 2025 through June 30, 2026 and back to 20 percent for deaths on or after July 1, 2026, and the exclusion is $3,000,000 for deaths on or after that date and no longer indexes.5 An advisor administering an estate in the twelve-month window needs the higher rate.
- Illinois. No portability between spouses, so the $4,000,000 threshold is available only once per couple unless planning is done. Illinois is the state where a credit shelter trust does the most work relative to its threshold.6
- Oregon. The $1,000,000 figure is a filing threshold rather than a true exemption, and there is no portability. Oregon is where a client with a house and a retirement account is most likely to be surprised.7
- Massachusetts. Since the 2023 reform the $2,000,000 operates through a credit, so only the excess is taxed. Before that, the entire estate was taxed once the threshold was crossed, and advisors who learned the old rule still quote it.8
- Connecticut. The $15,000,000 exemption is tied to the federal basic exclusion amount, so it moves whenever the federal amount moves.
- New York. The exemption phases out entirely above 105 percent of the threshold, so an estate just over the line is taxed in full.
- Hawaii and Maryland. The only two states that offer portability of the state exemption between spouses. Advisors assume federal portability carries over, and it does not.
- Nebraska. Since January 1, 2025, persons under twenty-two are exempt from the county inheritance tax, which is assessed and collected at the county level.9
What this means for a planning conversation
Business interests, real estate, concentrated stock and other appreciating assets can push a client into state tax exposure well before any federal exposure appears. Knowing where the thresholds sit identifies the planning need early. Knowing what moves the number, a completed gift to an irrevocable trust rather than a change of trustee or address, keeps the conversation honest.
Notes
- The seventeen are Connecticut, the District of Columbia, Hawaii, Illinois, Iowa (phasing out), Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey (inheritance tax only), New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington. ↩
- N.Y. Tax Law section 954(a)(3). ↩
- Minn. Stat. section 291.016, subd. 2. ↩
- Conn. Gen. Stat. section 12-640 et seq. ↩
- Wash. Senate Bill 5813 (2025); Wash. Senate Bill 6347 (2026). ↩
- 35 Ill. Comp. Stat. 405/2(b). ↩
- Or. Rev. Stat. section 118.010. ↩
- Mass. Gen. Laws ch. 65C, as amended by 2023 Mass. Acts ch. 50. ↩
- Neb. Rev. Stat. section 77-2004 et seq. ↩
Terry L. (T. L.) Turnipseed, J.D., LL.M., CTFA, is a tax, trust and estate attorney in Fort Lauderdale, Florida, and Head of Estate and Tax Planning at Alta Trust Company. He is a former tenured professor of law at Syracuse University. Reach him at tl@turnipseed.law or on LinkedIn. This article is general information, not legal advice.