Colorado estate tax rules have shifted significantly in recent years, and understanding them is crucial if you’re planning your family’s financial future or managing a loved one’s estate. Unlike many states, Colorado does not impose a state-level estate tax, but that doesn’t mean your estate is tax-free—federal estate taxes and other considerations still apply, and Colorado residents need to understand the full picture to protect their assets.
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Colorado Has No Estate Tax
Here’s the good news: Colorado eliminated its estate tax years ago, making it one of the more estate-friendly states for residents. If you live in Colorado or own property there, you won’t owe state estate taxes to Colorado itself. This is a significant advantage compared to states like Massachusetts, Oregon, and Washington, which still maintain state-level estate taxes.
However—and this is important—the absence of a Colorado estate tax doesn’t mean your heirs won’t face any tax burden. Federal estate taxes can still apply to large estates, and the rules change frequently based on federal law. As of 2024, the federal estate tax exemption is substantial, but it’s set to drop significantly in 2026 unless Congress acts.
Federal Estate Tax Basics
Even though Colorado doesn’t tax estates at the state level, the federal government absolutely does—if your estate exceeds certain thresholds. The federal estate tax applies to estates valued over the exemption limit, which is currently $13.61 million per person (or $27.22 million for married couples) in 2024.
This sounds like a lot, but it’s important to understand that this exemption shrinks dramatically. On January 1, 2026, the exemption is scheduled to drop to approximately $7 million per person unless Congress extends current law. This sunset provision means families with estates in the $10-15 million range should be paying close attention now.
The federal estate tax rate is a flat 40% on amounts exceeding the exemption. That means if your estate is $14 million and the exemption is $13.61 million, you’d owe 40% on the remaining $390,000—roughly $156,000 in federal taxes. For larger estates, the tax bill becomes substantial quickly.
External resources like the IRS Estate and Gift Tax page provide official guidance on current rates and thresholds.
Colorado Inheritance Rules
While Colorado doesn’t have an estate tax, it does have inheritance laws that determine how assets pass to heirs. Colorado follows the Uniform Probate Code, which provides clear rules for intestate succession (when someone dies without a will).
If you die without a will in Colorado, your assets will be distributed according to state law: spouses receive priority, followed by children, then parents, then siblings. This might not align with your actual wishes. That’s why having a valid will or trust is essential for Colorado residents who want to control where their assets go.
Additionally, Colorado recognizes several estate planning tools that can help minimize taxes and probate hassles. These include revocable living trusts, irrevocable trusts, and beneficiary designations on retirement accounts and life insurance. Understanding these options is key to effective estate planning.
Property Tax vs. Estate Tax
Many people confuse property tax with estate tax, and this confusion can lead to poor planning decisions. Let me clarify: property tax and estate tax are completely different.
Property tax is an annual tax you pay on real estate you own while you’re alive. Colorado has moderate property tax rates that vary by county, and these taxes continue year after year. Real estate tax and property tax are essentially the same thing—they’re ongoing costs of homeownership.
Estate tax, by contrast, is a one-time tax on the total value of your estate when you die. It’s not annual; it’s triggered only when your estate exceeds the exemption threshold. Colorado doesn’t impose this tax at the state level, but the federal government does for large estates.
For Colorado property owners, it’s important to understand that while you won’t face Colorado estate tax, your heirs might face federal estate tax if your total estate is large enough. Additionally, if you own property in multiple states, those states’ property tax rules will apply to their respective properties.
Exemptions and Thresholds
Understanding exemption thresholds is critical for estate planning. The current federal estate tax exemption of $13.61 million (2024) means that estates below this amount owe zero federal estate tax. For married couples who properly plan, the exemption effectively doubles to $27.22 million.
However, this exemption is not automatic for married couples. You must file an estate tax return and make an election to transfer unused exemption to your surviving spouse. This is called “portability,” and it requires proper documentation at the first spouse’s death.
Many Colorado residents don’t realize that the exemption applies not just to estate taxes but also to gift taxes during your lifetime. If you give away more than $18,000 per person per year (in 2024), you’re using your lifetime exemption. This is why wealthy individuals often work with tax professionals to coordinate gifts and estate plans.
Estate Planning Strategies
For Colorado residents with substantial assets, several strategies can minimize tax exposure and probate costs:
Revocable Living Trusts: These allow you to transfer assets outside of probate, saving time and money for your heirs. They’re not tax-saving vehicles themselves, but they provide significant administrative benefits in Colorado.
Irrevocable Life Insurance Trusts (ILITs): These remove life insurance proceeds from your taxable estate, potentially saving significant federal estate taxes. Since life insurance death benefits are included in your estate value, this strategy can be powerful for larger estates.
Charitable Giving Strategies: Donor-advised funds and charitable remainder trusts allow you to support causes you care about while reducing your taxable estate. These strategies provide both philanthropic and tax benefits.
Annual Gifting: Making strategic annual gifts to family members (up to $18,000 per recipient in 2024) reduces your estate while providing tax-free wealth transfer to your loved ones.
Family Limited Partnerships: For families with business interests or real estate holdings, these structures can provide discounts on asset values for estate tax purposes while maintaining family control.
Mistakes to Avoid
I’ve seen Colorado residents make several costly estate planning mistakes:
Ignoring the 2026 Exemption Cliff: Many people assume the current high exemption will last forever. It won’t. If your estate is between $7 million and $13.61 million, you should be planning now for the exemption reduction.
Failing to Update Beneficiaries: Life insurance policies and retirement accounts pass by beneficiary designation, not by your will. If you’ve gone through a divorce or had significant life changes, these designations might be outdated—potentially sending assets to an ex-spouse or wrong heirs.
Not Coordinating with Your CPA: Estate planning and tax planning must work together. A will or trust created without understanding tax implications can cost your heirs thousands in unnecessary taxes.
Holding Everything in Joint Tenancy: While joint tenancy avoids probate, it can create unintended tax consequences and doesn’t provide the control and privacy that trusts offer.
Procrastination: Estate planning isn’t exciting, so many people put it off. But dying without a plan means Colorado probate courts will distribute your assets according to state law, not your wishes—and your family will face delays and costs.
Colorado Probate Process
If you die with a will in Colorado but without a trust, your estate will go through probate. Colorado’s probate process is relatively streamlined compared to some states, but it still takes time and money.
For smaller estates (under $65,000 in most cases), Colorado offers an expedited succession process that avoids formal probate. This is much faster and cheaper than full probate, which typically takes 6-12 months and costs 3-7% of the estate’s value.
Probate costs include court fees, attorney fees, executor fees, and appraisal costs. These expenses are paid from estate assets before heirs receive anything. This is another reason why trusts are popular in Colorado—they avoid probate entirely and keep more money in your family’s hands.
When to Seek Professional Help
You should consult with an estate planning attorney and tax professional if:
- Your net worth exceeds $5 million
- You own property in multiple states
- You have a blended family or complex family situation
- You own a business or significant investment assets
- You want to minimize taxes for your heirs
- Your estate plan is more than 5-10 years old
- You’ve experienced major life changes (marriage, divorce, birth of children)
An inheritance tax calculator can give you a rough idea of potential taxes, but professional guidance is invaluable for creating an actual plan.
Colorado has excellent estate planning professionals, including attorneys specializing in trusts and estates, CPAs with tax expertise, and financial advisors who understand wealth transfer. Working with a coordinated team ensures your plan is comprehensive and tax-efficient.
Frequently Asked Questions
Does Colorado have an estate tax?
No. Colorado does not impose a state-level estate tax. However, federal estate taxes may apply to large estates exceeding the federal exemption threshold ($13.61 million per person in 2024).
What’s the difference between Colorado estate tax and federal estate tax?
Colorado estate tax doesn’t exist. Federal estate tax is imposed by the U.S. government on estates exceeding the exemption limit. Colorado residents must consider federal taxes but not state estate taxes.
Do I need a will or trust in Colorado?
While not legally required, a will or trust is strongly recommended. Without one, Colorado probate courts will distribute your assets according to state law, which may not match your wishes. A trust also avoids probate, saving time and money.
What happens to my Colorado property if I die?
If you have a will, your property will pass according to your instructions (after probate). If you have a revocable living trust, it passes outside of probate directly to your beneficiaries. If you die without either, Colorado law determines distribution based on intestate succession rules.
Is the federal estate tax exemption permanent?
No. The current exemption of $13.61 million per person is scheduled to drop to approximately $7 million on January 1, 2026, unless Congress extends it. This sunset provision means the exemption is temporary.
Can I reduce my estate tax through gifting?
Yes. Annual gifts up to $18,000 per recipient (2024) don’t count against your lifetime exemption. Strategic gifting can reduce your taxable estate and provide tax-free wealth transfer to family members.
Should I move my assets to a trust?
For most Colorado residents with significant assets, a revocable living trust provides probate avoidance and privacy benefits. However, the decision depends on your specific situation, assets, and goals. Consult with an estate planning attorney.
Conclusion
Colorado estate tax doesn’t exist, which is great news for state residents—but don’t let that lull you into complacency about overall estate planning. Federal estate taxes remain a real concern for wealthy Coloradans, especially with the exemption set to drop dramatically in 2026. The 2024 tax landscape requires proactive planning.
The key takeaway: Colorado’s lack of state estate tax is one advantage, but it’s just one piece of the puzzle. Combine this with proper beneficiary designations, potentially a revocable living trust, strategic gifting, and coordination with your tax advisor, and you’ll create a plan that protects your family and minimizes unnecessary taxes.
If your estate is substantial or your situation is complex, don’t try to navigate this alone. Estate planning professionals in Colorado can help you create a comprehensive strategy that takes advantage of current tax law while positioning your family for success. The cost of professional guidance is typically far less than the taxes and probate costs you’ll save.
