Slide Show | December 2013

10 States With the Scariest Death Taxes

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Unless you're sitting on a very large pile of money, you don't need to worry about federal estate taxes. The 2014 exemption from federal estate taxes is $5.34 million — and double that for married couples.

But state estate taxes? That's another story. Sixteen states and the District of Columbia impose an estate tax, and some kick in for estates valued at $1 million or less. At that level, estate taxes aren't just a problem for people who own private planes and beachfront property. Your home and retirement accounts will be counted when valuing your estate. Proceeds from your life insurance could be included, too, depending on how the policy is owned and who gets the money. Even if you live (and, well, die) in a state that doesn't have an estate tax, your estate could be nicked if you own property or other tangible assets (such as a plane or a boat) in a state that does.

Complicating matters further, some states impose an inheritance tax, which can force certain heirs to pony up a portion of the value of their inheritances.

Here's a look at the states that are the least friendly places to die.

By Sandra BlockSee my bio, plus links to all my recent stories.
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10 States With the Scariest Death Taxes

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

1. New Jersey

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Exemption level before state estate tax kicks in: $675,000

State estate tax rates: 4.8% - 16% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses, civil union partners

Inheritance tax: Yes

The Garden State is one of only two states (along with Maryland) to impose both estate and inheritance taxes. And New Jersey's exemption level at which estate taxes kick in is, by far, the lowest in the country. No wonder the state tops our list.

Parents, grandparents, descendants, children and their descendants, spouses, civil union partners, domestic partners and charities are exempt from the state's inheritance tax. There is also a $25,000 per-person exemption for siblings, sons-in-law and daughters-in-law. But other heirs are taxed at graduated rates ranging from 11% to 16% on inheritances valued at $500 or more.

New Jersey also "looks back" to gifts made to non-exempt individuals within three years prior to death. Such gifts are also subject to the inheritance tax unless beneficiaries can prove that the gifts weren't made "in contemplation of death."

1. New Jersey

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

2. Rhode Island

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Exemption level before state estate tax kicks in: $921,655 in 2014

Estate tax rates: 5.6% - 16% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses only

Inheritance tax: No

The Ocean State is the only other state where you don't have to be a millionaire to encounter the state's estate tax. Rhode Island adjusts the exemption every January for inflation.

2. Rhode Island

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

3. Minnesota

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Exemption level before state estate tax kicks in: $1 million

Estate tax rates: 5.6% - 16% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses only

Inheritance tax: No

Not only does the North Star State have a low exemption level for estates, but when calculating the value of your estate, Minnesota looks back to include taxable gifts made within three years prior to death.

On July 1, 2013, Minnesota added a relatively aggressive gift tax of 10%, with a lifetime credit of $100,000 per individual (no gift tax is owed until a beneficiary exceeds this threshold) and an annual, indexed-for-inflation exclusion of $14,000.

3. Minnesota

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

4. Oregon

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Exemption level before state estate tax kicks in: $1 million

Estate tax rates: 10% - 16% (on estates valued at $9.5 million or more)

Exempt from estate tax: Surviving spouses and registered domestic partners

Inheritance tax: No

The Beaver State earns this ranking thanks to a low exemption level — and a relatively high 10% tax rate on those smaller estates.

In 2012, Oregon's inheritance tax changed to an estate tax.

4. Oregon

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

5. Maryland

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Exemption level before state estate tax kicks in: $1 million

Estate tax rates: 5.6% - 16% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses only

Inheritance tax: Yes

The Free State isn't so free for some of your heirs. Spouses, children, daughters- and sons-in-law, parents, grandparents and siblings are exempt from the state's inheritance tax. But other heirs must pay a 10% tax on bequeathed property valued at $1,000 or more. Gifts made within two years prior to death may also be subject to the tax.

5. Maryland

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

6. New York

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Exemption level before state estate tax kicks in: $1 million

Estate tax rates: 5.6% - 16% (on estates valued at more than about $10 million)

Exempt from estate tax: Spouses only

Inheritance tax: No

Because the Empire State recognizes same-sex marriages, same-sex spouses are also exempt from estate taxes.

6. New York

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7. Massachusetts

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Exemption level before state estate tax kicks in: $1 million

Estate tax rates: 5.6% - 16% (on estates valued at more than $10 million)

Exempt from estate tax: Spouses only

Inheritance tax: No

In addition to the exemption for spouses, the Bay State allows an unlimited charitable deduction for property left to a qualified charity.

7. Massachusetts

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8. Connecticut

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Exemption level before state estate tax kicks in: $2 million

State estate tax rates: 7.2% - 12% (on estates valued at about $10 million or more)

Exempt from estate tax: Spouses, civil union partners

Inheritance tax: No

The Constitution State is one of only two (Minnesota is the other) with a state gift tax on assets you give away while alive. You'll have to file Connecticut gift tax returns every year to identify any such gifts, but taxes are due (at rates ranging from 7.2% to 12%) only when the aggregate value of gifts made to any individual since 2005 exceeds $2 million.

8. Connecticut

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States With Scariest Death Taxes — Estate Taxes, Inheritance Taxes

9. Maine

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Exemption level before state estate tax kicks in: $2 million

Estate tax rates: 8% - 12% (on estates valued at more than $8 million)

Exempt from estate tax: Spouses only

Inheritance tax: No

In the Pine Tree State, even if no estate tax is due, your estate must file an abbreviated version of the estate tax return to remove an automatic tax lien on all Maine property in the estate.

9. Maine

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10. Washington

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Exemption level before state estate tax kicks in: $2 million

Estate tax rates: 15% - 19% (on estates valued at more than $9 million)

Exempt from estate tax: Spouses

Inheritance tax: No

The Evergreen State'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.

The state's estate tax exemption will be indexed to inflation starting January 1, 2014.