Estate and inheritance Taxes vary by state

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Many METARs have net worth (including real estate) which can make their estates subject to estate tax. Even if the estate is too small to be subject to federal estate tax it may be subject to significant state estate tax.

The Estate Taxes Catching Americans by Surprise

Seventeen states and Washington, D.C., have estate or inheritance taxes or both. The rules can change from year to year.

By Ashlea Ebeling, The Wall Street Journal, Nov. 18, 2023

…While the federal estate tax hits only the wealthiest Americans, the thresholds for state estate and inheritance taxes are generally much lower. These taxes can cost heirs tens of thousands of dollars they aren’t expecting to pay, along with the grief of figuring out how to pay the bill when the bulk of an estate’s value is tied up in a house or business. The problem is especially acute now because of the recent meteoric rise in real-estate values…

Estate taxes get levied at rates of up to 20% on estates over a certain threshold, known as the exemption amount. Estate-tax exemption amounts vary from $1 million to $12.92 million.

Inheritance taxes are slightly different. They aren’t levied on the estate, but the heirs. The much lower exemption amounts and tax rates depend on the heir’s relationship to the deceased…There is no estate or inheritance tax when assets are left to a spouse who is a U.S. citizen…

In many states, for married couples to take full advantage of the exemption amounts for both spouses, their estate plans have to include trusts known as credit shelter trusts… [end quote]

Every state and situation is different. Research your own situation. I set up a credit shelter trust.

Wendy

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In many areas attorneys hold seminars on requirements. Usually that’s about wills, living will, power of attorney and inheritance/estate taxes.

In NJ I attended a one evening session at the junior college.

Back then (2000) NJ had a stiff inheritance tax. The rate varied with your relationship to the one who inherited. Spouse little or no tax, moderate to heirs, highest to non-heirs.

This leads to discussion of your will and do you need a trust to address the issues. Will tax savings pay for the preparation costs?

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The WSJ article is excellent. Must read. The highest estate tax, 20%, is in Hawaii and Washington. Maryland is worst with 16% estate tax and 10% inheritance tax.

Article lists 8 states plus DC with 16% estate tax and 6 with Inheritance tax with NJ and KY highest at 16%; Nebraska and PA at 15%; Iowa at 6%.

No surprise Florida, Texas, Missouri, Ohio, and Indiana not listed. Probably no tax making them attractive to retirees. Surprise California and Arizona are not on the list. But Oregon and Washington are.