State estate-tax traps under the $15M federal exemption

Financial advisors concentrating on the $15 million federal estate tax exemption can encounter state estate taxes that apply at much lower asset levels. New York’s 2026 cliff begins at $7.35 million and rises to $7,717,500, with rates from 3.06% to 16%. Oregon’s exemption is $1 million. Many states, including California, have no estate tax.

States apply different tests to determine tax liability. Domicile and the location of property are common factors in those tests. Lawrence D. Mandelker, partner at Venable, called domicile a subjective test, asking ‘Where did you intend to be?’ He said clients who change residences need documentation to support their intent.

New York uses a cliff range rather than a single exemption. For 2026 the lower threshold is $7.35 million and the upper band is $7,717,500; estates that fall inside that range face escalating rates up to 16%. Kevin Matz, partner at ArentFox Schiff, noted New York may assert tax liability if a decedent maintained a permanent abode in the state even without proving lengthy physical presence. He described cases where a surviving spouse who planned to relocate could still be taxed if death occurred before the move.

Some states require filings even when no tax is due. A. Michael Wargon of Day Pitney said Massachusetts and Maryland perform proportionate calculations that can trigger filing requirements and place estates on a state’s tax radar. He suggested charitable gifts or lifetime transfers for clients who exceed state cutoffs.

Estate taxes differ from inheritance taxes. Pennsylvania, Maryland and New Jersey levy inheritance taxes based on a beneficiary’s relationship to the decedent. Nonresidents can trigger state estate taxes by owning real property or tangible assets in a taxing state; Matz warned that jewelry, artwork or bullion held in a state can create exposure.

Clients sometimes consider changing residence to states without estate tax, such as Florida. Tax authorities may contest the timing and evidence of a domicile change. Mandelker recommended updating voter registration, joining local organizations and creating substantial residency records, saying small acts like signing up for a store card are insufficient. Wargon illustrated the evidentiary challenge by asking, ‘Are you a New Yorker or a Floridian?’

Estate planners report routine reviews of clients’ life changes — purchases of vacation homes, extended stays in another state, changes in memberships or religious affiliation — and coordination with tax counsel when clients approach state thresholds. Clear records of intent and physical presence are used in audits, and gifts or charitable transfers can reduce state-level estate tax exposure that the federal exemption alone will not prevent.