Federal Estate Tax vs. State Estate Tax: What Ordinary Families Need to Know

The federal estate tax exclusion reaches $15 million for deaths in 2026, but several states impose their own estate taxes at much lower thresholds. Families should check both federal and state rules before assuming an inheritance faces no tax – Shutterstock

Federal estate tax and state estate tax sound like two versions of the same financial headache, but they follow different rules and can affect different families. In 2026, the federal estate tax basic exclusion amount reaches $15 million for someone who dies during the year, which puts the federal tax far outside the reach of most households.

That does not mean every family can forget about estate taxes forever. Some states impose their own estate taxes with much lower thresholds, while a handful impose inheritance taxes that focus on the person receiving the money or property. A family can therefore face no federal estate tax and still encounter a state tax issue, particularly when an estate includes valuable real estate, a business, investment accounts, or property in more than one state.