Will my family owe estate tax on my business?
By Greg Garone, CEPA® · Published by Morrowgate Private Wealth · Last reviewed October 2026 · 7 minute read
Federal estate tax applies only to estates worth more than $15 million per person in 2026, at rates up to 40%. But about a dozen states and Washington, D.C. have their own estate tax that starts far lower, and your business counts at what it’s worth today, which is often more than owners assume. The bigger risk for most owners isn’t the tax itself. It’s finding the cash to pay it without selling the company.
How your business is counted
Your estate includes your share of the business at its fair market value on the date of death: what a willing buyer would pay a willing seller. That number is usually set by a professional appraisal, not by the price in an old buy-sell agreement or a figure you heard from a broker.
Two things can move it. Discounts for lack of control or marketability can lower the value of a minority or hard-to-sell interest. And since the Supreme Court’s 2024 Connelly decision, life insurance a company receives to buy back an owner’s shares can raise it.
Federal and state thresholds in 2026
| Tax | 2026 exemption | Worth knowing |
|---|---|---|
| Federal | $15 million per person | Top rate 40%. A surviving spouse can generally use the unused amount (portability). |
| New York | $7.35 million | The “cliff”: an estate more than 5% over the exemption loses it entirely. No portability. |
| Massachusetts | $2 million | One of the lowest thresholds in the country. |
| Illinois | $4 million | Not indexed for inflation. |
| Other states | Varies | Including Connecticut, Hawaii, Maine, Maryland, Minnesota, Oregon, Rhode Island, Vermont, Washington and D.C. |
A few states, including New Jersey and Pennsylvania, also have an inheritance tax paid by the people who receive the assets. State rules change often; confirm current amounts with your attorney or CPA.
The real problem: cash
Federal estate tax is generally due nine months after death. If most of the estate is the business, the family may have a large bill and very little cash. Without a plan, the options are borrowing, pulling cash out of the company, or selling it quickly, often for less.
When a closely held business makes up more than 35% of the estate, Section 6166 of the tax code can let the estate pay the tax attributable to the business in installments over as long as about 14 years. It helps, but it isn’t automatic and it comes with interest and conditions.
What owners commonly ask their attorney about
- Gifting shares during life, so future growth happens outside the estate.
- Trusts such as GRATs or an ILIT, to move growth to the next generation or keep insurance out of the estate.
- Insurance sized to the tax, so the family has cash in weeks, not months.
- A current valuation, so every document starts from the same number.
Documents to find this week
- Your most recent business valuation, appraisal or offer
- Your will and trust
- Any prior gift tax returns (Form 709)
- Life insurance policies and who owns them
Questions for your attorney
- With the business at today’s value, would my estate owe federal or state estate tax?
- If it did, where would the cash come from, and how quickly?
- Would gifting shares or a trust make sense for us now?
Educational only, not tax or legal advice. Figures as of October 2026. Sources: 2026 federal and New York exclusion amounts; IRS estate tax overview.