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. State estate tax is where the real exposure hides for a much larger group of families.
The gap between “rarely triggers” and “commonly triggers”
| Federal | Washington | Oregon | |
|---|---|---|---|
| 2025 exemption (single) | $13.99M | $2.193M | $1M |
| Top rate | 40% | 20% | ~16% |
| Estates affected per year | Under 5,000 nationally | Thousands, WA alone | Thousands, OR alone |
Washington’s $2.193M exemption with a 20% top rate is aggressive by state standards — high enough to catch a paid-off Seattle-area home plus a retirement account. Oregon’s $1 million exemption is even lower; a $3M home plus a decent 401(k) balance clears it without anyone in the household feeling “wealthy” in the way the word usually implies.
Why the state layer catches people the federal layer doesn’t
The federal exemption is designed to shelter all but the largest estates — $13.99M per individual, effectively $27.98M for a married couple via portability of the deceased spouse’s unused exclusion. State exemptions were never indexed to match; several haven’t moved in years and sit an order of magnitude lower. A family that owns real estate in a high-cost coastal market plus normal retirement savings can be nowhere near the federal threshold while still owing state estate tax.
Twelve states plus DC currently levy an estate tax on the estate itself: Washington, Oregon, Massachusetts, Maine, New York, Connecticut, Illinois, Maryland, Minnesota, Rhode Island, Vermont, and Hawaii. Six more states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania — instead levy an inheritance tax paid by the heirs, calculated based on their relationship to the deceased (spouses are usually exempt; more distant relatives or non-relatives pay more). Maryland is the only state with both.
The 2026 sunset makes the federal number a moving target
The current $13.99M federal exemption is scheduled to roughly halve — to somewhere around $7M, inflation-adjusted — at the TCJA sunset on 2026-01-01, unless Congress acts to extend it. That doesn’t change any state exemption, but it does mean anyone planning with a multi-year horizon should model both the current exemption and the lower post-sunset figure, since even federally-safe estates today could cross the threshold after the change if it takes effect as scheduled.
Where this framework doesn’t apply
- Inheritance-tax states. The six states that tax heirs directly instead of the estate work on a completely different calculation — relationship to the deceased matters more than estate size.
- Estates with significant trust structures. Properly-structured irrevocable trusts (ILITs, GRATs, IDGTs) remove assets from the taxable estate entirely — 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 if no tax was owed. Skipping this filing when it wasn’t required can quietly forfeit millions of exemption for the survivor.
- Charitable bequests. Amounts left to charity at death are fully deductible from the taxable estate at both the federal and (usually) state level — not exposure at all.
What to actually do
- Add up your actual gross estate — everything owned outright, retirement accounts, life insurance where you’re the owner, business interests, real estate at market value, minus debts.
- Check your specific state’s exemption and top rate; if you’re above it, state tax is usually the binding constraint, not federal.
- If you’re near the federal exemption and have a longer planning horizon, model both today’s figure and the lower post-2026-sunset figure.
- For estates with state exposure but no federal exposure, cheaper state-specific moves (irrevocable trusts sized to the state threshold, lifetime gifting) are often more proportionate than complex federal-focused planning.
- If a spouse has passed and portability wasn’t filed, talk to an estate attorney about whether it’s still recoverable — there’s a relief provision for some late elections.
Open the Estate Tax Exposure Calculator → and run your own gross estate against both the federal and your state’s exemption side by side.