Welcome to episode 72 of the One for the Money podcast. I am so very grateful you have taken the time to listen. Estate and tax planning are critical aspects of better financial planning so your beneficiaries can have a better life. In this episode, I’ll discuss the individual states with the highest estate and inheritance taxes. You’ll learn why you don’t want to die in Oregon or Maryland or a few other states.
In this episode...
Benjamin Franklin famously said “In this world, nothing is certain except death and taxes” and in this episode, my focus is on a combination of the two, namely estate and inheritance taxes which are levied at one's passing.
A reminder, your estate is the sum total of all your assets at death. It would include retirement accounts, your home and other real estate, vehicles, jewelry, your classic 23-window van, and other valuable items. For a number of Americans, their estate will be worth millions of dollars. Many wonder if it would be taxed. As a reminder, there are often two categories of taxes you have to consider, namely Federal and State taxes. The good news is that most won’t have to worry about Federal estate taxes because the Tax Cuts and Jobs Act which was passed a few years ago, doubled the amount of an estate that won’t be taxed. Now only those estates that have a value over $13.61 million for an individual or $27.22 million for a couple will be taxed. Those are 2024 numbers and each year it is adjusted for inflation. It should be noted that starting in 2026, if the TCJA does expire then those numbers will be halved. But even in half, those are pretty large values that an estate would have to exceed for that amount to be subject to tax. Consequently, only a tiny percentage have to factor federal estate taxes into their financial planning, and those that do can pay lawyers and accountants to minimize or eliminate most of the Federal estate taxes.
But just because we don’t have to worry about Federal taxes, doesn’t mean that our estate won’t be taxed because our state residence may apply a tax or even two.
The two types of taxes are estate taxes and inheritance taxes. Estate taxes are paid by the estate of the person who died before assets are distributed to the heirs of the estate. Inheritance taxes are paid by heirs on the gifts they receive. There are twelve states and the District of Columbia that impose estate taxes and six states impose inheritance taxes. Maryland is the only state to impose both an estate tax and an inheritance tax (spouses are usually exempt from the inheritance tax).
Now most states have reduced or eliminated their estate and inheritance taxes over the past decade to dissuade well-off retirees from moving to more tax-friendly jurisdictions. But even if you don’t consider yourself particularly wealthy, the value of your home and funds in your retirement savings could exceed the estate tax threshold in some states. With that in mind, if you live in a state that imposes an estate or inheritance tax—and you don’t plan to move—you may want to talk to a certified financial planner or tax professional about steps you can take to reduce the size of your estate.
Just so you are aware here are the states that tax your estate and those that tax the heirs of your estate.
The Estate tax states are Washington, Oregon, Minnesota, Illinois, Vermont, NY, Maine, Mass, Connecticut, RI, Maryland, and DC.
The Inheritance tax states are Nebraska, Iowa, Kentucky, Pennsylvania, NJ, and Maryland.
As noted previously, the state of Maryland is on...
