State inheritance taxes, also known as death taxes, are taxes that are levied against an individual who is named as a beneficiary of an individual’s estate. These taxes are levied by the state and are paid by the recipient of assets from the deceased’s, also called the decedent’s, estate.
State estate taxes are taxes levied by the state against the estate of the deceased’s assets once their debts are repaid. There is also a federal estate tax that is levied against estates worth more than, approximately $12 million.
Not all states have an inheritance tax or estate taxes. Those that do have variable rates of taxation and thresholds for taxation. If an estate is not above the state’s threshold, then no tax is levied against the state. Additionally, there are certain deductions and exemptions that can reduce an individual’s estate and inheritance tax burdens.
Spouses of the decedent may be able to take advantage of a state’s version of the marital deduction which could reduce their tax burden to 0. Similarly, close relatives may pay less in state inheritance taxes through familial deductions.
State inheritance taxes and estate taxes vary across the country. 11 states have estate taxes, 5 states have state inheritance taxes, and one state - Maryland - has both.
The states who have an estate tax have a variety of thresholds and tax rates. These taxes are levied during the probate process after the decedent’s will has been processed as part of the settling of liabilities. The states with state estate taxation and their rates are:
These tax rates can vary and by utilizing deductions and exemptions, crafty individuals can still avoid these lower estate tax thresholds.
States with a state inheritance tax will levy them against the beneficiaries of the estate when they receive the assets after the probate process. Those states and their taxation rates are:
Through familial deductions these inheritance taxes can be reduced or even eliminated.
When you are planning your estate, it’s important to not only consider the federal taxes that may apply, but also the state level taxes that may keep your assets from your beneficiaries. If you want to create an estate plan that skirts or avoids state inheritance taxes and state estate taxes, you will need a trusts & estates attorney.
An experienced trusts & estates attorney can use their knowledge of the local, state, and federal tax codes to ensure that your estate is left as whole as possible for distribution. A trusts & estates attorney may be able to avoid taxation through the use of trusts, deductions, or exemptions, to get you the best possible tax breaks for your needs and circumstances.