For now, most people donโt have to be scared of federal estate taxes. In 2022, only estates valued at $12.06 million or more for an individual ($24.12 million or more for a married couple) need to pay federal estate taxes. Even better for the very wealthy, thereโs no federal inheritance tax for heirs who reside in such lofty economic brackets, notes the recent article titled โStates with Scary Death Taxesโ from Kiplinger.
By definition, estate taxes are paid by the estate and based on the estateโs overall value, while inheritance taxes are paid by the individual who inherits property, assets, or anything else of value. This isnโt to say โregular peopleโ donโt need to worry about death taxes. We do, because states have their own estate taxes, and a few still have inheritance taxes.
A number of states eliminated estate taxes in the last ten years or so, in an effort to keep retirees from leaving and heading to places like Florida, where thereโs no estate tax. However, a dozen states and the District of Columbia still have estate taxes, six states have an inheritance tax and one has both an estate and inheritance tax: Maryland.
Hereโs how some state taxes look in 2022:
Connecticut has an estate tax, with an exemption level at $7.1 million. However, there is no inheritance tax. The Nutmeg state is the only state with a gift tax on assets gifted during oneโs life.
The District of Columbia has an estate tax, with an exemption level of $4 million.
Hawaiiโs estate tax exemption level is $5.49 million., one of the higher state estate tax exclusions, and is not adjusted for inflation.
Illinoisโs estate tax is $4 million, but thereโs no inheritance tax. Itโs known as one of the least taxpayer friendly states in the country for retirees.
Iowa is phasing out inheritance taxes, but this doesnโt take effect until 2025. In the meantime, thereโs no estate tax, and if the estate is valued at less than $25,000, thereโs no inheritance tax. No taxes are due on property inherited by a lineal ascendent or descendent, but for other family members, the taxes range from 8%โ12%.
Thereโs no estate tax in Kentucky. However, depending upon your relationship to the person who died and the value of the property, the inheritance tax is 4% to 16%.
Maine has an estate tax exemption of $5.87 million, but no inheritance tax.
Marylandโs has both an estate tax exemption of $5 million and a flat 10% inheritance tax.
Massachusetts has no inheritance tax and a $1 million estate tax exemption.
Minnesota has a low estate tax exemption of $3 million. Any taxable gifts made three years prior to death are included.
New York, New Jersey, Rhode Island, Oregon, Vermont and Washington have no inheritance taxes, while Pennsylvania has no estate tax but does have an inheritance tax.
Itโs not necessary to move purely to avoid estate or inheritance taxes. An experienced estate planning attorney uses strategic tax planning as part of an estate plan, minimizing tax liability and preserving assets.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Kiplinger (July 29, 2022) โStates with Scary Death Taxesโ
