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All Contents © 2020The Kiplinger Washington Editors
By Sandra Block, Senior Editor
Rocky Mengle, Tax Editor
| October 11, 2019
Most people shouldn't be afraid of federal "death taxes." For 2019, only estates worth $11.4 million or more ($22.8 million or more for a married couple) are slashed by federal estate taxes, and only a small percentage of Americans have accumulated that much wealth. Plus, there's no federal inheritance tax to spook your heirs. (Estate taxes are paid by the estate and based on the estate's overall value, while inheritance taxes are paid by an individual heir on whatever property they inherit.)
But don't feel too comfy if your assets are below the federal estate tax threshold—a tax bill from your state could be lurking in the shadows. While a growing number of states are reducing or eliminating their death taxes to dissuade well-off retirees from moving to more tax-friendly jurisdictions, 12 states and the District of Columbia still impose an estate tax and six states have an inheritance tax on the books. (Maryland has both!) So if you live in one of the states listed (alphabetically) below, beware. Your heirs could be haunted by a state tax collector.
Estate tax: Yes
Estate tax exemption level: $3.6 million
Estate tax rates: 7.2% - 12%
Inheritance tax: No
Inheritance tax rates: N/A
Go to Connecticut's full state tax profile
The Constitution State's current estate tax exemption amount is $3.6 million. It will creep up to $5.1 million on January 1, 2020. The tax due is limited to $15 million.
Connecticut is the only state with a gift tax on assets you give away while you're alive. If you made taxable gifts during the year, state law requires that you file a Connecticut gift tax return to identify such gifts. However, taxes (at rates ranging from 7.8% to 12%) are due only when the aggregate value of gifts made since 2005 exceeds $3.6 million.
Estate tax exemption level: $5,681,760
Estate tax rates: 12% - 16%
Go to the District of Columbia's full state tax profile
The District of Columbia has a trick-or-treat estate tax. The 2019 exclusion amount for the tax is $5,681,760, which is pretty high when compared to other places in the U.S. As a result, most estates don't have to pay the tax. That's the treat. But the lowest possible estate tax rate is on the high end. So, if the tax does apply, D.C. will take at least 12% of the estate's value. That's the trick.
Estate tax exemption level: $5.49 million
Estate tax rates: 10% - 15.7%
Go to Hawaii's full state tax profile
At $5.49 million, the Aloha State has one of the higher state estate tax exclusion amounts, and it isn't adjusted annually for inflation. That makes the tax less frightening for Hawaii residents.
The current Hawaii estate tax rates range from 10% to 15.7%. However, starting in 2020, the highest rate creeps up to 20% for estates worth more than $10 million.
Estate tax exemption level: $4 million
Estate tax rates: 0.8% - 16%
Go to Illinois' full state tax profile
Since Illinois is the least taxpayer-friendly state in the country, you shouldn't be startled to hear that it has an estate tax. The exemption amount is $4 million (after inclusion of adjusted taxable gifts), which at least isn't too frightening. The exemption amount isn't adjusted annually for inflation, either.
Estate tax: No
Estate tax exemption level: N/A
Estate tax rates: N/A
Inheritance tax: Yes
Inheritance tax rates: 5% - 15%
Go to Iowa's full state tax profile
The Hawkeye State's inheritance tax does not apply if the estate as a whole is worth less than $25,000. In addition, no tax is due on property inherited by a spouse, parent, grandparent, great-grandparent, children, stepchild, grandchild, great-grandchild or other lineal ascendant or descendant.
The tax can be hair-raising for other heirs, though. Brothers, sisters, sons-in-law and daughters-in-law will be hit with a 5% to 10% tax, depending on the value of the property they inherit. Uncles, aunts, nieces, nephews and all other people inheriting property are taxed at rates ranging from 10% to 15%.
Inheritance tax rates: 4% - 16%
Go to Kentucky's full state tax profile
As with other inheritance tax structures, the amount of Kentucky inheritance tax owed depends on the heir's relationship to the person who died and the value of the inherited property.
The tax isn't scary at all for the decedent's spouse, parents, children, grandchildren and siblings. They don't have to pay the tax.
But it can be a nightmare for other heirs. Nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles and great-grandchildren are taxed at rates ranging from 4% to 16%, depending on the value of the property inherited (the first $1,000 of property is exempt). All other heirs are taxed at rates ranging from 6% to 16% (their exemption is only for the first $500 of property).
Estate tax exemption level: $5.7 million
Estate tax rates: 8% - 12%
Go to Maine's full state tax profile
The Pine Tree State has one of the less-scary estate taxes, because it only applies to estates worth $5.7 million or more. Since most estates aren't that valuable, Maine's tax doesn't ensnare many estates.
Maine's estate tax rates are comparatively reasonable, too. The top rate is only 12%, which is tied with Connecticut for the lowest top rate in the nation.
Estate tax exemption level: $5 million
Estate tax rate: 0.8% - 16%
Inheritance tax rates: 10% (flat rate)
Go to Maryland's full state tax profile
For 2019, the Free State's estate tax exemption is $5 million in 2019, plus any predeceased spouse's unused exclusion amount. The exemption amount is currently not scheduled to increase for 2020. Rates range from 0.8% to 16%.
While Maryland also has an inheritance tax (with a flat 10% rate), the list of heirs exempt from paying it includes the decedent's spouse, parents, grandparents, children, grandchildren, siblings, son-in-law, daughter-in-law and surviving spouse of a deceased child. In addition, property not exceeding $1,000 passing to any one person is not subject to the tax.
Estate tax exemption level: $1 million
Go to Massachusetts' full state tax profile
One of only two states with its exemption stuck at $1 million, the Bay State is less friendly to estates than most other states, including neighboring northeastern states that also made our list, such as Rhode Island and Connecticut.
Estate tax exemption level: $2.7 million
Estate tax rates: 13% - 16%
Go to Minnesota's full state tax profile
The North Star State's exemption for 2019 is $2.7 million. It will rise to $3 million in 2020.
But Minnesota looks back to include as part of your estate any taxable gifts made within three years prior to death.
Inheritance tax rates: 1% - 18%
Go to Nebraska's full state tax profile
With Nebraska's inheritance tax, the closer the heir's relationship to the decedent, the smaller the tax rate and the greater the exemption. For example, the tax on heirs who are immediate relatives is only 1% and does not apply to property that is worth less than $40,000. For remote relatives, the tax rate is 13% and the exemption amount is $15,000. For all other heirs, the tax is imposed at an 18% rate on property worth $10,000 or more.
Inheritance tax rates: 11% - 16%
Go to New Jersey's full state tax profile
New Jersey imposes an inheritance tax ranging from 11% to 16% on inherited property with a value of $500 or more. The amount of tax due is based on who specifically receives the property and how much the property is worth.
The decedent's spouse; children, grandchildren, etc.; parents, grandparents, etc.; mutually acknowledged children; and stepchildren (but not step-grandchild or their descendants) do not have to pay the tax. The first $25,000 of property inherited by the decedent's sibling, son-in-law or daughter-in-law) is exempt as well. After that, they must pay the inheritance tax at rates ranging from 11% to 16%.
All other individual heirs pay a 15% tax on the first $700,000 of inherited property and a 16% tax on everything over $700,000.
Estate tax exemption level: $5.74 million
Estate tax rates: 3.1% - 16%
Go to New York's full state tax profile
The Empire State has been gradually increasing its estate tax threshold. For 2019, it's $5.74 million. This amount is adjusted annually for inflation.
That's a pretty generous threshold, but New York's estate tax contains a very scary condition: If your estate totals more than 105% of the threshold, the entire estate will be taxed.
Estate tax rates: 10% - 16%
Go to Oregon's full state tax profile
The Beaver State is the most frightening place in the U.S. to die if you're concerned about estate taxes. Oregon has resisted the trend to raise its estate tax exemption (or even adjust it for inflation). The state's estate tax still kicks in for estates valued at as little as $1 million. In addition, it also imposes a relatively high 10% tax rate on even the smallest of qualifying estates.
Inheritance tax rates: 4.5% - 15%
Go to Pennsylvania's full state tax profile
The Keystone State's inheritance tax doesn't apply to heirs who inherit property from a spouse or child aged 21 or younger. The tax is imposed at a 4.5% rate on property inherited by direct descendants and lineal heirs. The Pennsylvania tax is imposed at a 12% rate for people who inherit property from a sibling and at a 15% rate for all other heirs.
A 5% discount is allowed if Pennsylvania inheritance taxes are paid within three months of the decedent's death.
Estate tax exemption level: $1,561,719
Go to Rhode Island's full state tax profile
The Ocean State adjusts its estate tax exemption annually for inflation. But the tax has a fiendishly low threshold: Rhode Island is one of only three states that tax your estate if it's worth less than $2 million.
Estate tax exemption level: $2.75 million
Estate tax rate: 16% (flat rate)
Go to Vermont's full state tax profile
Vermont's estate tax has an average exemption level, but be warned: The 16% tax is a flat rate due on every dollar above that threshold. That, coupled with high state income taxes while you're alive, makes the Green Mountain State a scary place for the wealthy.
Estate tax exemption level: $2.193 million
Estate tax rates: 10% - 20%
Go to Washington's full state tax profile
The Evergreen State's estate tax exemption for 2019 is $2,193,000. This amount is indexed to inflation, so it could rise next year.
In addition to its relatively low threshold, Washington's estate tax rates are unusually high. But Washington offers an additional $2.5 million deduction for family-owned businesses valued at less than $6 million.