Understanding Estate and Inheritance Tax Essentials
This article provides a comprehensive overview of estate and inheritance taxes, detailing federal and state regulations, exemptions, and rates. It informs residents and planners about the implications of death taxes in different jurisdictions, helping them make informed estate planning decisions. Understand which states impose these taxes and how exemptions vary, ensuring you are prepared for the fiscal responsibilities upon inheritance or estate transition.
Taxation upon death can be complex, especially regarding estate and inheritance taxes. When someone passes away, these taxes may be applied to the assets transferred to heirs or beneficiaries. This article covers the basics of death-related taxes and highlights which states impose these levies individually or combined.
Estate and inheritance taxes explained
Estate taxes are applied to the total value of assets passed down from the deceased to heirs. These are based on the estate's overall worth.
Federal estate tax exemptions are set at $5.49 million, with a maximum rate of 40%, taxed only on amounts exceeding this threshold. While federal taxes are unavoidable, some states can be avoided, depending on residence. As of 2017, 14 states plus Washington, D.C., impose additional estate taxes, including Washington, Massachusetts, Oregon, Rhode Island, Minnesota, Maine, Connecticut, Vermont, New York, New Jersey, Maryland, Illinois, Hawaii, and Delaware.
Inheritance taxes are levied on beneficiaries receiving assets or gifts, such as money, property, or other valuables. Unlike estate taxes, inheritance taxes are paid by the individual beneficiaries. As of 2017, Maryland, Iowa, Kentucky, Nebraska, Pennsylvania, and New Jersey charge inheritance taxes.
Tax thresholds and rates overview
Washington State has the highest estate tax rate at 20%, with a $2.1 million exemption. Oregon, Massachusetts, and D.C. follow with 16% rates and exemptions of $1 million. Minnesota and Rhode Island offer a 16% tax rate with exemptions of $1.8 million and $1.15 million respectively, while Connecticut and Maine impose 12% taxes with higher exemption limits. In inheritance taxes, Nebraska leads with 18% and a $10,000 exemption, followed by Kentucky at 16% with a $500 exemption. Maryland and New Jersey face both estate and inheritance taxes, with Maryland's rate at 10% and a $1,000 exemption, and New Jersey's rates varying based on relationship and amounts received.
