States in Which Not to Die

Posted By P. Arnsen Blakely || 29-Jan-2013

STATES IN WHICH NOT TO DIE

Under recently passed federal law, families of individuals who die in the year 2013 with estates valued at less than $5,250,000 will not have to pay a federal estate tax. This exemption from federal estate tax can be doubled for married couples. This is not the case at the state level, however, as states have different inheritance tax rates and different exemptions.

Does this mean that you may not have to pay a federal inheritance tax, but you may have to pay a state inheritance tax? Yes, it does, but it depends on where you live. Some states have no inheritance tax at all. Other states have an inheritance tax, but the exemption from the tax is high. Still other states have a low exemption but a higher tax rate.

In the year 2012 there were 21 states and the District of Columbia that levied inheritance taxes. This tax is an unpopular tax, and many believe that it can result in loss of jobs, loss of businesses, loss of employers, loss of sales and so forth. As a result, a majority of the states have no inheritance tax.

Starting in 2013, the five states with the worst inheritance tax situations, are Iowa, which has no exemption and a top tax rate of 15%, Indiana which has an exemption from tax of only $100 and a top tax rate of 20%, Kentucky with an exemption of $500 and top tax rate of 16%, Nebraska with an exemption of $10,000 and top tax rate of 20%, and New Jersey with an exemption of $675,000 and top tax rate of 16%. These estate tax exemptions should then be compared with federal exemptions of over five million.

A mere six state levy just an inheritance tax and the rate is based on the relationship of the heir to the individual who died. Many times, taxes begin on the first dollar of bequest. Only Maryland and New Jersey impose both. In Maryland, taxes are much more confusing. Estate taxes are obligatory up to 16% above a $1 million exemption, as well as a 10% inheritance tax on every dollar bequeathed to loved ones – including blood relatives and friends. The 10% inheritance tax is not applicable for any money left to children, grandchildren, parents, or siblings. As in the federal system, bequests to a spouse are also tax-free.

For those who like schedules to review, the following describes each states' amount of exemption from the tax and top tax rate. The order of this schedule graduates from the least friendly state having the smallest exemption to the more friendly state having the larger exemption.

State

Exemption

Top Rate

Iowa

$ -

15%

Indiana

$ 100.00

20%

Kentucky

$ 500.00

16%

Nebraska

$ 10,000.00

18%

New Jersey

$ 675,000.00

16%

Rhode Island

$ 892,865.00

16%

Oregon

$ 1,000,000.00

16%

Minnesota

$ 1,000,000.00

41%

Tennessee

$ 1,000,000.00

9.5%

Maryland

$ 1,000,000.00

16%

Wash. D.C.

$ 1,000,000.00

16%

New York

$ 1,000,000.00

16%

Massachusetts

$ 1,000,000.00

16%

Maine

$ 2,000,000.00

12%

Washington

$ 2,000,000.00

19%

Connecticut

$ 2,000,000.00

12%

Vermont

$ 2,750,000.00

16%

Illinois

$ 4,000,000.00

16%

North Carolina

$ 5,120,000.00

16%

Delaware

$ 5,120,000.00

16%

What about states like California, Nevada and New Mexico? They have no estate inheritance taxes. Should this information affect the state you choose to live in? The law firm of P. Arnsen Blakely can help you make the correct choice, and show you how to avoid many other pitfalls when planning your estate. Your heirs deserve the best! Call our law firm at 714 556-0800 for a free initial consultation today!

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