8 Tax Rules Around Inheritance That Are Changing in 2025

Building your wealth requires smart investing. But if you plan to pass assets on to heirs, you also need to understand how tax laws impact your legacy.

In 2025, several key changes to estate and inheritance taxes have taken effect, with more on the way in 2026. These new laws will impact how much heirs can receive tax-free and how estates are taxed at both the federal and state levels.

Whether you're planning your own estate or expecting an inheritance, here's what you need to know about the changes.

As of 2025, the federal exemption amount for estate taxes has increased to $13.99 million per person. This increases to $15 million per individual in 2026. 

That means federal taxes will not apply to estates until they cross that threshold, which should allow individuals to pass on more wealth tax-free. Married couples can double the amount, meaning they can shield $30 million from federal estate taxes in 2026. 

The annual gift tax exclusion has increased to $19,000 in 2025 and remains the same in 2026. 

This means individuals can give up to this amount to as many individuals as they like this year without it counting toward their lifetime estate tax exemption.

For married couples, the combined tax-free gift limit will be $38,000 per recipient. This change provides a great opportunity to transfer wealth gradually without triggering federal taxes.

In addition to federal estate taxes, some states levy an additional estate tax of their own. New York is one of those states.

In 2025, New York's estate tax exclusion increased to $7.16 million, up from $6.94 million in 2024. The estate tax itself ranges from 3.06% to 16% in New York. This will be adjusted for inflation in 2026.

Connecticut's estate tax is a flat 12%. The exemption amount for this tax mirrors that of the federal estate tax and has risen to $13.99 million in 2025, up from $13.61 million in 2024. This will increase to $15 million in 2026. 

Maine has increased its estate tax exemption to $7 million in 2025. Information for 2026 is still to be determined. 

Estate tax rates in Maine range from 8% to 12%.

Rhode Island's estate tax exemption has risen from $1.77 million in 2024 to $1.8 million in 2025, reflecting an inflation adjustment. Although this increase is small, it still allows more wealth to be passed on tax-free.

The estate tax in Rhode Island tops out at 16%. The figure for 2026 will be adjusted for inflation. 

Estate tax and inheritance tax are often confused, but they function differently. Estate tax is levied on the total net value of an estate before assets are distributed to heirs. This tax is paid by the estate itself.

Inheritance tax is imposed on beneficiaries after they receive assets, and is based on their relationship to the deceased.

As of this year, Iowa no longer has an inheritance tax, which helps keep more cash in your wallet. Previously, only immediate family members were exempt from inheritance taxes.

Changes to federal and state estate tax rules mean this year and next present a valuable opportunity for strategic estate planning.

Are you prepared for these changes, and do they affect where you stand financially? Now might be the time to revisit your estate plan to ensure your wealth is protected for the next generation.