A THIRD OF STATES have either an estate tax or an inheritance tax, and one of them has both. A complete list is available from McGuireWoods, Nolo and the Tax Foundation. State estate taxes are separate from the federal estate tax—and they typically kick in at much lower asset levels.
Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania all have inheritance taxes. An inheritance tax is levied not on the estate, but on those who inherit the money. Depending on the state, certain heirs may be exempt from the tax, such as your spouse and children.
State estate taxes are levied in Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington, as well as in Washington, DC. Historically, exclusions from state estate taxes have almost always been much lower than the federal estate tax exclusion, which is $11.7 million in 2021 and $12.06 million in 2022. That means your estate could avoid federal taxes, but still get hit at the state level. In recent years, many states had moved to align their exemption with the federal level, but that trend came to an abrupt halt, following 2018’s sharp increase in the federal exemption.
Finally, for the lucky residents of Maryland, there is both a state estate tax and an inheritance tax to contend with. But things are looking up for wealthy families: Maryland’s estate tax exemption rose to $5 million for 2019 and the years the follow.
Next: Inherited IRAs
Previous: Marital Deduction