Transfer taxes and state-level estate planning: How to protect your wealth across states

Byline: Jeff Cowley | Senior Wealth Strategist, Citizens Private Wealth

Overview of federal transfer taxes

The federal government taxes the transfer of property both when you are alive and at death.

Estate tax

The federal estate tax is a tax on the transfer of property after a person's death. It applies to estates exceeding a certain value threshold, which is adjusted annually for inflation. The tax rate can be substantial, and proper estate planning is essential to minimize its impact. In 2025, individuals have a lifetime exclusion amount of $13.99 million. Under the One Big Beautiful Bill Act (OBBBA), this increases to $15 million in 2026, with future inflation adjustments. A 40% tax rate will apply once this has been exhausted.

Gift taxes

Gift taxes apply when you transfer property. The gift tax annual exclusion amount is a provision in the U.S. tax code that allows individuals to give a certain amount of money or property to another person each year without incurring gift tax. For 2025, the annual exclusion amount is $19,000 per recipient and increases for inflation each year in $1,000 increments. Gifts in excess of this must be reported on an annual gift tax return.

Any gifts made above the annual exclusion count against your lifetime limit. As of 2025, the lifetime gift tax exemption is $13.99 million, indexed for inflation. Under the One Big Beautiful Bill Act (OBBBA), this increases to $15 million in 2026, with future inflation adjustments. If your gifts exceed your lifetime exclusion amount, a 40% tax will be due. This exclusion is shared with the federal estate tax, meaning gifts made during life reduce the amount that can be passed tax-free at death.

Generation-Skipping Transfer Tax (GSTT)

The Generation-Skipping Transfer Tax (GSTT) is an additional tax imposed on the transfer of property to individuals who are at least two generations younger than the donor, such as grandchildren. This tax is levied to prevent families from circumventing a round of estate taxes that would typically be incurred upon the death of the donor's children. The GSTT applies only after the donor has exceeded the lifetime estate tax exemption amount. The GSTT exclusion amount is the same as the lifetime exclusion ($13.99 million in 2025, increasing to $15 million in 2026 under OBBBA). GSTT exclusion is allocated to gifts made to younger generations. This is most often seen where gifts are made to a trust intended to benefit children and grandchildren.

State-level transfer taxes

Several states have their own transfer taxes on wealth. The rules that apply depend on where you live and potentially where you own property.

State estate taxes

Twelve states and the District of Columbia charge an estate tax on property transfers at death. You may owe these taxes if you pass away while living in one of these states:

Like federal taxes, your estate must pay any owed state estate taxes before the remaining assets pass along to your heirs.

Each state has its own rules. It's important to note that state estate tax exemptions can be much lower than the federal level, leading to far more residents possibly owing this tax. For instance, in Rhode Island the exemption is $1.8 million, and in Massachusetts it is $2 million.

State inheritance taxes

State estate tax is levied on the total value of a deceased person's estate before distribution to heirs, with the estate itself responsible for payment. In contrast, state inheritance tax is imposed on the beneficiaries based on the value of the inheritance they receive, with rates often varying by their relationship to the deceased. While estate tax affects the estate as a whole, inheritance tax impacts individual beneficiaries directly. Five states charge inheritance taxes in 2025: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa had inheritance taxes until repealing them in 2025.

For example, New Jersey does not charge inheritance taxes on transfers to spouses, children, civil union partners, parents, and grandparents. However, it can charge up to 16% on an inheritance left to someone who doesn't have a family relationship with you. This can be an unpleasant surprise for partners who are not formally married.

State gift taxes

Connecticut is the only state with a gift tax but follows the federal lifetime exclusion amounts as well as the federal annual exclusion amount. Thus, while Connecticut may impose some additional tax compliance on transfers, if a taxpayer does not have a federal estate tax liability, they will also not have a Connecticut estate tax liability.

How to maintain tax efficiency after a move

Wealth transfer planning can help maintain tax efficiency when you move to another state. Your first step should be to review your estate plan in light of the tax laws in your new state and documents should be amended or updated where appropriate.

If you move to a state with lower estate tax exemptions, there may be a greater need to implement strategies to mitigate your tax exposure. This can mean funding an irrevocable trust sooner or more aggressively or transferring property sooner than you had originally considered.

Conversely, moving to another state may reduce or eliminate your state estate tax exposure. For example, it is not uncommon for Massachusetts residents to retire and move just north to New Hampshire, or south to Florida where there are no income or estate taxes.

Consult a wealth manager for specific guidance on transfer tax

You have worked hard to build your wealth. Proper wealth transfer planning can mitigate federal and state estate tax exposures and help ensure that more of your assets go to the people and causes you care about.

Connecting with a Citizens Private Wealth Manager can help you navigate these complexities while uncovering opportunities to minimize federal transfer taxes and optimize your estate and financial plan. Reach out today to schedule a consultation.