Does your ability to pass on your wealth to your heirs depend on where you live … and die? Indeed, it does. Federal estate taxes apply no matter where you live within the U.S. However, eighteen states subject their citizens to estate taxes or inheritance taxes.
It’s safe to say that most people decide where they want to live during their retirement years, based on lower costs of living, a lower general tax environment and where their loved ones live, among other factors. If your retirement plan includes finding the place where your heirs will pay the least amount of taxes, says moneytips, then you’ll want to read the article “Best States to Die In… For Taxes.”
The difference between federal estate taxes and state inheritance taxes, is that estate taxes are subtracted from the estate before it’s dispersed to heirs. However, the inheritance tax applies to heirs. It doesn’t matter if they live in another state, they still have to pay the inheritance tax.
There are only six states that still maintain an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Your surviving spouse won’t have to pay inheritance taxes, and New Jersey exempts a domestic partner. Children and siblings are sometimes exempt from paying inheritance taxes, in some of these states.
Nebraska and Pennsylvania are the only states where children and grandchildren are not exempt. In Nebraska, if you’re an immediate relative, you get hit with a 1% inheritance tax on anything above $40,000. In the Keystone State (Pennsylvania), inheritance tax rates start at 4.5% for children and lineal heirs.
Nebraska has the highest top inheritance tax rate of all the states, at a whopping 18%, while the others generally range from 10% to 16%.
Each state has its own exemptions, based on the amount of the inheritance and the relationship of the heir to the deceased. Therefore, you’ll need to check with a local estate planning attorney to learn what your obligations will be (or your heir’s obligations). States categorize heirs into different types for assigning both exemptions and tax rates. Maryland keeps it simple, with only two categories, while Iowa has seven.
That leaves 32 other states to consider dying in, because of the lack of applicable state taxes. Maryland imposes a 16% tax on estates above $4 million for decedents dying in calendar year 2018. New Jersey no longer imposes an estate tax on the estates of decedents, who died on or after Jan. 1, 2018.
As stated previously, tax rates vary by state, and they do change, so speak with an experienced estate planning attorney in your state or the state of your loved ones to find out what the tax rates are and any exemptions available.
Since inheritances usually pass to spouses and children, and the exemption rates are fairly high in most states, many people won’t have to pay large sums or any estate taxes. However, prior planning is always appreciated by your heirs. If they don’t have the cash on hand to pay the taxes, they may end up with little or no inheritance. Plan ahead, for their sake.
Reference: moneytips (March 26, 2019) “Best States to Die In… For Taxes”
I heard Cindy’s presentation at a Senior Luncheon at my church, and was very impressed. She helped my daughter and me understand many aspects of elder law. Josh has also been very helpful in my planning to enter an independent living situation . I have told many friends about them.
The very best elder law attorney and staff anyone could ever ask for! I have referred a number of clients to Cindy and she never disappoints. She is kind, caring, and extremely thorough in making sure everything is completed as it should be. I highly recommend Cindy for anyone needing lawyer services; she truly goes above and beyond for every client she helps and has had a huge impact in so many peoples’ lives. Thank you, Cindy and staff, for everything that you do- I’m so glad to know you!
Cindy and the Nelson Elder Care Law team are trustworthy and helpful. They are the experts in elder care law. At Leaf Cremation, we entrust our families to the care of the Nelson team when their services are needed.
Josh Nelson, and his staff, have been amazingly helpful to our family. The ins and outs of nursing homes, the rules and regulations that govern Medicare and Medicaid are daunting and the folks at Nelson Elder Care Law have been informative, responsive, and above all, empathetic. I cannot emphasize enough how their service has taken a weight off of our shoulders especially during a world pandemic that has targeted nursing homes across our country. I highly recommend retaining Josh and his firm!
I had a simple legal question to them that I needed answered and they very helpful in giving me the information I needed. I highly recommend them and will reach out to them if I need more advice or assistance. Thank you for taking your time to just answer a couple of questions I had!