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Investing

What is estate tax and who pays it?

What you should know about estate taxes, how they are paid and ways to manage inheriting an estate.

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Estate tax, also known as the "death" tax, is applied to assets inherited by others when you pass on. according to the IRS, it's a tax "on your right to transfer property at your death."

In 2024, the federal estate tax ranges from 18% to 40%, depending on how much the value of the estate exceeds the current exemption limit of $13.61 million.

In addition to the federal tax, 12 states and the District of Columbia have their own estate taxes.

CNBC Select covers what you should know about estate taxes, including who pays them and how they might affect your financial planning.

What we'll cover

What are estate taxes?

Estate taxes and inheritance taxes are often discussed together, but they are different: Inheritance tax is paid by a beneficiary, while estate tax is paid out of the deceased's estate before any remaining money, property or other assets are distributed.

If you're the executor of an estate, you will need to file an estate tax return. On the whole, the value of assets is determined by their fair market value, not how much someone paid for them.

The unlimited marital deduction means surviving spouses are typically exempt from federal estate taxes.

If you are estate planning or have specific questions about estate taxes, you may want to contact a financial professional.

Is there a federal estate tax?

Yes, there is a federal estate tax. It ranges from 18% to 40%, depending on how much of the estate is over $13.61 million, which is the current exclusion limit.

If you die with assets worth $14.61 million, for example, your estate must pay taxes on $1 million.

Payment is normally due within nine months of an individual's passing, although an executor of an estate can request a six-month extension.

The Tax Cuts and Jobs Act of 2017 temporarily doubled the estate tax exclusion limit. Without congressional action, however, the limit will revert to $5 million (indexed for inflation) at the start of 2026.

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Which states have an estate tax?

In 2024, twelve states and the District of Columbia impose an estate tax — Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.

Connecticut and Vermont have flat taxes, but most estate taxes are progressive — meaning the rate increases with the total value of the assets.

Connecticut

Connecticut has a flat estate tax rate of 12%, applied to estates worth more than $13.61 million, the same as the federal exclusion amount.

Hawaii

In 2024, the estate tax in Hawaii ranges from 10% to 20% and is applied to estates valued at more than $5.49 million.

Illinois

As of 2023, estates worth more than $4 million are subject to a progressive estate tax that ranges from 0.8% to 16%

Maine

In 2024, the estate tax in Maine ranges from 8% to 12% on estates worth more than $6.8 million.

Maryland

In 2024, Maryland's estate tax ranges from 0.8% to 16% and is applied to estates worth more than $5 million.

Maryland is the only state with both an estate tax and an inheritance tax.

Massachusetts

The estate tax in Massachusetts ranges from 0.8% to 16% on estates worth more than $2 million.

Minnesota

Minnesota's estate tax ranges between 13% to 16% on estates worth more than $3 million.

New York

The estate tax in New York ranges from 3.06% to 16% and is applied to estates worth more than $6.94 million.

New York has a "cliff tax," which means if your estate is greater than the exemption by 5% or less, only the difference will be taxed. If your assets exceed the exemption by over 5%, the entire value of your estate is taxed.

Oregon

The estate tax in Oregon ranges from 10% to 16% and is applied to estates valued at more than $1 million.

Rhode Island

Estates valued at more than $1.77 million are subject to Rhode Island's estate tax, which ranges from 0.8% to 16%.

Vermont

Vermont has a flat 16% estate tax that is levied on estates worth more than $5 million. Estate taxes are also assessed on assets given away within two years of the estate owner's death. 

Washington

The estate tax in Washington state ranges from 10% to 20% and is applied to estates valued at more than $2.19 million.

District of Columbia

In 2024, the estate tax in Washington, D.C., ranges from 11.2% to 16% and is applied to estates valued at $4.71 million or more.

Can I avoid paying estate tax?

While only surviving spouses are exempt from estate taxes, there are other ways to minimize their financial impact.

Charitable donations

If you leave assets to a qualifying charity, that amount is deducted from your gross estate before taxes.

Gifting

If you want to shrink the size of your taxable estate, the easiest way to do that is to distribute your assets when you're still alive.

In 2024, you can gift up to $18,000 per individual without having to pay the federal gift tax and without it counting toward your lifetime gift exemption of $13.61 million. (Married couples can give up to $36,000 tax-free combined.)

Irrevocable Trusts

An irrevocable trust transfers control of an asset from the grantor to the beneficiary, protecting it from creditors and reducing the value of the grantor's total estate.

While rules vary by state, irrevocable trusts typically cannot be amended, modified or terminated without the consent of the beneficiary.

529 Plans

Established in 1996, 529 plans are state-sponsored investment accounts that offer tax-free earnings and withdrawals for educational expenses. They are excluded from your taxable estate, but if the contribution is more than $18,000 a year, it could be subject to the gift tax.

States typically set contribution limits per beneficiary, which can range from $300,000 to $550,000.

More than half of all states offer tax deductions or credits when you contribute to a 529 plan, though in most cases you must contribute to an in-state plan to receive the tax break,

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Bottom line

While most Americans won't have to pay estate taxes, they can have serious implications for those who do. If you believe your estate is large enough for state or federal estate tax to be applied, you should consult with a financial expert to see how you can limit your tax liability.

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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