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All Contents © 2019The Kiplinger Washington Editors
By Sandra Block, Senior Editor
| October 30, 2018
Unless you’ve just won one of this year’s mind-boggling lottery jackpots, you probably don’t have to worry about federal estate taxes. The tax overhaul increased the amount of assets that is exempt from federal estate taxes to $11.18 million per person, or $22.36 million for a married couple.
However, 12 states and the District of Columbia impose their own estate taxes, and six states have an inheritance tax (which can force certain heirs to give up a portion of their inheritance).
In some states, taxes creep in on estates valued at merely $1 million. For purposes of assessing an estate tax, the value of your home and retirement accounts will be counted. Proceeds from your life insurance could be counted, too, depending on how the policy is owned and who gets the money.
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. New Jersey and Delaware eliminated estate taxes altogether at the end of 2017. But if you live in one of the following states, beware. We’ve listed states with more generous exemption levels first. Take a look.
Exemption level: $5.25 million
Estate tax rates: 3.1% - 16%
Exempt from estate tax: Spouses only
Inheritance tax: No
Go to full state tax profile
The Empire State has been gradually increasing its estate tax threshold. Starting January 1, 2019, it will rise to $5.49 million, which was the federal threshold before Congress increased the exemption as part of the Tax Cuts and Jobs Act. After that, New York’s threshold will be 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.
Exemption level: $4 million
Estate tax rate: 16%
Inheritance tax: Yes
The Free State’s estate tax exemption will rise to $5 million in 2019, but it won’t be indexed to inflation after that.
While Maryland also has an inheritance tax (with a flat 10% rate), the list of heirs exempt from paying it is long.
Exemption level: $2.2 million
Estate tax rates: 10% - 20%
The Evergreen State’s estate tax exemption is indexed to inflation.
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.
Exemption level: $2.4 million
Estate tax rates: 13% - 16%
The North Star State’s exemption will rise to $2.7 million on January 1, 2019, and $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.
Exemption level: $2.75 million
Estate tax rate: 16%
Vermont’s estate tax has a relatively high 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.
Exemption level: $2.6 million
Estate tax rates: 7.2% - 12%
Exempt from estate tax: Spouses and civil-union partners
The Constitution State’s exemption will increase to $3.6 million on January 1, 2019.
Connecticut is the only state with a gift tax on assets you give away while you’re alive. The state’s tax law requires that you file Connecticut gift tax returns every year to identify such gifts; however, taxes (at rates ranging from 7.2% to 12%) are due only when the aggregate value of gifts made to any individual since 2005 exceeds $2 million.
Exemption level: $1.54 million
Estate tax rates: 0.8% - 16%
The Ocean State adjusts its estate tax exemption annually for inflation. But it’s a low threshold: Rhode Island is one of only three states that tax your estate if it’s worth less than $2 million.
Exemption level: $1 million
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 rates: 10% - 16%
Exempt from estate tax: Spouses and registered domestic partners
The Beaver State is the most frightening place in the U.S. to die if you’re concerned about your estate. 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.