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All Contents © 2017The Kiplinger Washington Editors
Federal estate taxes are no longer a problem for all but the extremely wealthy. In 2016, as much as $5.45 million in assets is exempt from federal estate taxes—double that for a married couple; in 2017, it will rise to $5.49 million.
However, state estate taxes, which kick in for estates valued at only $1.5 million or less in several states, could take a big bite out of your legacy. Your home and retirement accounts will be counted when your estate is valued for tax purposes, and proceeds from your life insurance could be counted, too, depending on how the policy is owned and who gets the money.
Fourteen states and the District of Columbia impose an estate tax, and six states impose an inheritance tax, which can force certain heirs to give up a portion of their inheritance. The good news is that a growing number of states are increasing their estate-tax exemptions in an effort to dissuade well-off retirees from moving to more tax-friendly jurisdictions.
Tennessee’s inheritance tax was eliminated in 2016, so it's no longer on our list. New Jersey will increase its estate tax exemption to $2 million in 2017; no longer the worst state for your estate, it now ranks fifth on our list here. The new least-friendly place to die? Take a look.
By Sandra Block, Senior Editor
| Updated for 2016
Exemption level before state estate tax kicks in: $4,187,500 for fiscal year 2016-2017
Estate tax rates: 5.6% - 16% (on estates valued at more than about $10 million)
Exempt from estate tax: Spouses only
Inheritance tax: No
The Empire State is gradually increasing its estate-tax exemption, and, as of January 1, 2019, it will match the federal threshold. But beware, because New York’s estate tax contains a very scary feature: if If your estate exceeds the threshold by
105%, the entire estate will be taxed.
Exemption level before state estate tax kicks in: $2,750,000
Estate tax rates: 9%-16%
Vermont's estate tax, along with steep income-tax rates, makes it particularly terrifying for wealthy people. The state is also number one on our list of least tax-friendly states for retirees.
Exemption level before state estate tax kicks in: $2 million in 2016; $3 million in 2017
Estate tax rates: 5.6% - 16% (on estates valued at about $10 million or more)
Inheritance tax: Yes
The Free State is gradually becoming a more tax-friendly place to die. Its estate-tax exemption will increase every year until 2019, when it will match the federal exemption.
Exemption level before state estate tax kicks in: $2 million
Estate tax rates: 15% - 20% (on estates valued at more than $9 million)
Exempt from estate tax: Spouses
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. Its estate tax exemption is indexed to inflation.
State estate tax rates: 7.2% - 12% (on estates valued at about $10 million or more)
Exempt from estate tax: Spouses, civil-union partners
The Constitution State is the only state 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.
Exemption level before state estate tax kicks in: $675,000 (but rising to $2 million on Jan. 1, 2017)
State estate tax rates: 4.8% - 16% (on estates valued at about $10 million or more)
Big news for estates in New Jersey: The state's estate-tax threshold will rise to $2 million on Jan. 1, 2017, and the tax will disappear in 2018. However, New Jersey will continue to impose an inheritance tax.
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."
Exemption level before state estate tax kicks in: $1.5 million
The Ocean State adjusts its estate-tax threshold annually for inflation. Unfortunately, thanks to low inflation, the exemption remained unchanged in 2016 and probably won't change much in 2017.
Exemption level before state estate tax kicks in: $1.6 million
Not only does Minnesota 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.
Exemption level before state estate tax kicks in: $1 million
Estate tax rates: 5.6% - 16% (on estates valued at more than $10 million)
One of only two states with its exemption stuck at $1 million, Massachusetts is less-friendly to estates than most other states, including neighboring northeast states such as Rhode Island and Connecticut that also made our list.
Estate tax rates: 10% - 16% (on estates valued at $9.5 million or more)
Exempt from estate tax: Surviving spouses and registered domestic partners
With New Jersey's estate tax threshold slated to rise to $2 million on Jan. 1, 2017, the Beaver State becomes the most frightening place in the U.S. to die if you're concerned about your estate. Oregon has resisted the trend to increase 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.
1. New Jersey
5. Rhode Island
9. New York
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