The “Inheritance Tax” Reality: 8 States Where Your Heirs Will Pay the Most in 2026

Let’s be real here. Most people assume that inheritance tax is something only billionaires have to worry about. They think if you’re not living in a sprawling mansion or parking your yacht somewhere fancy, your family won’t see a dime taken by the state after you pass away. That’s not exactly how it works, though. In 2026, only a handful of states still impose inheritance taxes, yet the rules in these places can genuinely surprise you.

Unlike estate taxes, which are paid by the estate before anyone receives anything, inheritance taxes are levied directly on the people who inherit. Imagine your aunt leaves you her house, and suddenly you owe thousands just because you weren’t her child. It happens more often than you’d think. What makes this whole situation even more frustrating is that each state structures these taxes differently, exempting some relatives while hammering others with rates that can climb as high as sixteen percent or even eighteen percent in certain circumstances.

Maryland: The Only Double Whammy

Maryland is the only state in the country that has both an estate tax and an inheritance tax, making it particularly burdensome for families planning their legacies. The Maryland estate tax threshold for 2026 is $5 million, meaning if you die and your total estate is worth less than $5 million, the estate owes nothing at all to the state of Maryland. However, that’s only one side of the coin. The Maryland inheritance tax is 10% of the “clear value” of the inherited property, where clear value means the fair market value of the property, less certain expenses.

Not everyone has to pay this ten percent rate, thankfully. In Maryland, close relatives and charities, as well as some not-so-close relatives, are completely exempt from the tax, while other inheritors pay the tax at a 10% rate. Still, if you’re planning to leave money to friends, nieces, nephews, or other collateral heirs, they could face a significant tax bill that reduces what you intended to give them.

Kentucky: Up to 16 Percent for Non-Lineal Heirs

Kentucky presents another tricky landscape for inheritance planning. Kentucky and New Jersey have the highest top marginal inheritance tax rates, each at 16 percent. Here’s the thing, though: not everyone pays that top rate.

In Kentucky, surviving spouses, parents, children, grandchildren, brothers, sisters, half-brothers, and half-sisters of the decedent are exempt from the state’s inheritance tax, and charitable, educational, and religious institutions are exempt as well. It’s when you get to more distant relatives that things start to hurt. Nieces, nephews, half-nieces and nephews, daughters and sons-in-law, aunts, uncles, and great-grandchildren have a $1,000 exemption and a tax rate of 4 percent to 16 percent, while for all others, the tax rate ranges from 6 percent to 16 percent.

Nebraska: Harsh Rates for Distant Relations

Nebraska takes a somewhat similar approach to Kentucky. Nebraska is one of six states that currently imposes an inheritance tax, with the others including Iowa, Kentucky, Maryland, New Jersey, and Pennsylvania. The rates depend heavily on your relationship to the deceased.

Spouses and charities are fully exempt from Nebraska inheritance tax, while immediate relatives (parents, grandparents, children, grandchildren, brothers and sisters, adopted children, etc.) have an exemption amount of $100,000 and a tax rate of 1 percent. When it comes to more distant folks, the burden escalates dramatically. Other relatives have a $40,000 exemption and an 11 percent rate, while everyone else has a $10,000 exemption and a 15 percent rate.

If you’re a Nebraska resident who wants to leave a generous gift to a close friend or a caretaker who helped you in your final years, just know they’ll face that fifteen percent rate. That reality can fundamentally change how families approach estate planning in Nebraska.

New Jersey: Complex Class System

New Jersey Estate Tax is no longer imposed for individuals who died on or after January 1, 2018, which sounds like good news at first. The catch is that the state maintained its inheritance tax, and the way it’s structured makes things incredibly complicated. Kentucky and New Jersey have the highest top marginal inheritance tax rates, each at 16 percent.

New Jersey divides beneficiaries into different classes based on their relationship to the person who died. Class A includes spouse, domestic partner, children, stepchildren, parents, and grandparents with a 0% tax rate on inheritance, while Class C includes siblings, spouse of a child, and spouse of a deceased child with the first $25,000 exempt, then inheritance taxed at 11%–16% depending on the amount. Class D beneficiaries face even steeper taxes. The graduated structure means that larger inheritances get taxed at progressively higher rates, which can feel punishing when you’re already dealing with grief and logistics.

Pennsylvania: A Tiered Approach

Pennsylvania has maintained an inheritance tax for decades, and honestly, it’s become a fixture of the state’s revenue system. Pennsylvania does not currently have a state estate tax, but property transferred from a decedent to a beneficiary (unless the beneficiary is a surviving spouse or a child aged 21 or younger of the decedent, or charity) is subject to a Pennsylvania inheritance tax.

Pennsylvania’s inheritance tax applies to most property transfers from deceased residents and even to some intrastate property owned by nonresidents, with rates that vary depending on the precise relationship: 0% for spouses, 4.5% for lineal heirs, 12% for siblings, and 15% for other heirs. Siblings getting hit with twelve percent might seem harsh, especially when you consider that parents and children qualify for the much lower rate. Friends and more distant relatives face the fifteen percent bracket, which can substantially reduce what they actually receive from an inheritance.

Washington: The Estate Tax Giant

Washington state operates a bit differently since it focuses primarily on estate taxes rather than inheritance taxes. However, the impact on heirs can be equally significant. Washington has the highest estate tax rate of 35 percent, assessed on marginal taxable estate values of $9 million or more. That’s an astonishing figure when you compare it to other states.

Washington increased its estate tax by raising all but its lowest marginal estate tax rate, including boosting the top rate from 20 to 35 percent, while also increasing the estate tax exemption by $807,000, from $2.193 million in 2024 to $3 million in 2025, with these changes taking effect on July 1, 2025. While the exemption did increase, the top rate skyrocketing to thirty-five percent is a major concern for anyone with substantial assets in Washington. Even though this is technically an estate tax and not an inheritance tax, the effect on heirs remains brutal since it reduces the overall amount available for distribution.

Massachusetts: Low Exemption, Steep Rates

Massachusetts presents another challenging environment for estate planning because of its remarkably low exemption threshold combined with aggressive tax rates. The Massachusetts estate tax exemption amount remains $2,000,000, which hasn’t been adjusted since 2023. Given how property values have climbed, especially in the Boston metro area, many middle-class families find themselves unexpectedly caught by this tax.

In 2020, the state also increased its progressive estate tax rate to as high as 20% for estates valued at more than $10 million. Interestingly, Massachusetts has a somewhat unique problem. Residents of Massachusetts have an annual average income that exceeds $70,000 a year, and the state has the 6th highest average income in the United States, so many high income earners will have an estate tax problem. It’s one of those situations where earning a decent living and owning a home in an expensive area can suddenly push your heirs into tax territory you never anticipated.

Oregon and Rhode Island: The Lowest Exemptions

Both Oregon and Rhode Island stand out for having some of the least generous exemptions in the country. Oregon and Rhode Island have the least generous exemptions, at only $1 million and $1,802,431, respectively. If you live in Oregon, your estate can hit that million-dollar mark surprisingly fast once you factor in a home, retirement accounts, and perhaps some life insurance.

Rhode Island’s exemption sits just above that threshold but still remains comparatively low. As of 2026, Rhode Island has an estate tax on estates worth more than $1,802,431, with estate tax rates ranging from 0.8% to 16%. The rate structure is graduated, which means smaller estates pay less, but once you cross certain thresholds, the percentage climbs quickly. For residents of these states, even modest wealth accumulation can trigger estate taxes that diminish what your heirs ultimately receive.

Understanding inheritance and estate taxes is something most folks put off until it’s nearly too late. The reality is that five states still impose inheritance taxes in 2026, while several others maintain estate taxes with varying exemption levels and rates. If you live in Maryland, Kentucky, Nebraska, New Jersey, Pennsylvania, Washington, Massachusetts, Oregon, or Rhode Island, your heirs could face significant tax bills unless you plan ahead. It’s not about being super wealthy or trying to dodge responsibilities. It’s about making sure the people you care about actually receive what you intended to leave them, rather than watching a chunk disappear to state coffers. What do you think about these tax policies? Should states be moving away from inheritance taxes altogether, or do they serve an important purpose?