Only 5,000 Estates Owe Federal Estate Tax Each Year — But 12 States Have Their Own

Federal estate tax gets most of the headlines, but it’s a top-1% problem in the most literal sense. We checked the IRS’s own numbers: fewer than 5,000 estates owe federal estate tax in a typical year, against roughly 3 million annual deaths. That count comes from years with a lower exemption than today’s. State estate tax is where the real exposure hides for a much larger group of families.

The gap between “rarely triggers” and “commonly triggers”

State figures are from the Tax Foundation’s 2026 table (as of October 1, 2026). The last row uses each state’s top rate on everything above the exemption, which is what our estate tax calculator does; graduated brackets make the real bill lower, especially in Massachusetts, where rates start at 0.8%.

Washington is the state that moved most. Its exemption went from $2.193M to $3M in July 2025, with the top rate raised to 35% at the same time; from July 1, 2026 the top rate is back at 20%. Oregon hasn’t moved its $1 million exemption at all, and it isn’t indexed, so every year of house-price growth pulls more ordinary estates over the line.

Why the state layer catches people the federal layer doesn’t

The federal exemption is built to shelter all but the largest estates: $15M per person, effectively $30M for a married couple through portability of the deceased spouse’s unused exclusion. State exemptions were never set to match. Connecticut is the one exception, tying its exemption to the federal figure, so it is also $15M in 2026. Everywhere else the state line sits far lower, and a family with a high-cost coastal house plus normal retirement savings can be nowhere near the federal threshold while still owing state estate tax.

Twelve states plus DC levy an estate tax on the estate itself: Washington, Oregon, Massachusetts, Maine, New York, Connecticut, Illinois, Maryland, Minnesota, Rhode Island, Vermont and Hawaii. Five states (Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) instead levy an inheritance tax paid by the heirs, based on their relationship to the deceased; spouses are usually exempt and more distant relatives pay more. Iowa used to be on that list, but its inheritance tax ended for deaths on or after January 1, 2025.

The 2026 sunset that didn’t happen

When this post first went up, the federal exemption was scheduled to fall to roughly $7M on January 1, 2026, when the 2017 tax law’s higher exemption expired. That planning advice is now out of date. The One Big Beautiful Bill Act, signed July 4, 2025, set the 2026 exemption at $15M per person with no expiry date and inflation indexing from 2027, and the IRS confirmed the figure in Rev. Proc. 2025-32.

For state planning, the change makes the federal layer even less relevant. A married couple now needs more than $30M before the federal tax starts, while Oregon’s line is still $1M. If you were running two scenarios (today’s exemption and the post-sunset one), you can drop the second. The SLAT freeze post covers what the cancelled sunset means for trusts that were set up to beat it.

Where this framework doesn’t apply

• Inheritance-tax states. Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania tax heirs directly, so the relationship to the deceased matters more than estate size.
• New York’s cliff. Once a New York taxable estate passes 105% of the $7.35M exemption, the exemption disappears and the whole estate is taxed, not just the excess. A top-rate-on-the-excess estimate understates that case.
• Estates with significant trust structures. Properly-structured irrevocable trusts (ILITs, GRATs, IDGTs) remove assets from the taxable estate entirely, so a gross-estate figure that includes trust assets overstates real exposure.
• Portability wasn’t elected. A surviving spouse only gets the deceased spouse’s unused federal exemption if an estate tax return (Form 706) was filed electing portability, even when no tax was owed. Most state estate taxes have no portability at all, so each spouse’s state exemption is use-it-or-lose-it.
• Charitable bequests. Amounts left to charity at death are deductible from the taxable estate at the federal level and in most states, so they aren’t exposure.

What to actually do

1. Add up your gross estate: everything owned outright, retirement accounts, life insurance you own, business interests, real estate at market value, minus debts.
2. Look up your state’s 2026 exemption and rate. If you’re above it, state tax is usually the binding constraint, not federal.
3. Run the number with your state’s top rate as a ceiling, then check the state’s own rate table for the exact figure.
4. For state exposure without federal exposure, proportionate moves (lifetime gifting under the $19,000 annual exclusion, trusts sized to the state threshold) usually beat complex federal-focused planning.
5. If a spouse died in the last five years and portability wasn’t filed, ask an estate attorney about the simplified late election in Rev. Proc. 2022-32.

Open the Estate Tax Exposure Calculator → and run your gross estate against the federal and your state’s exemption side by side.