State-level estate taxes can add complexity to the process of settling an estate, as they are in addition to any federal estate taxes that might be owed. Not all states impose estate taxes, and the ones that do have varying thresholds and tax rates. Below is a comprehensive understanding of state-level estate taxes, followed by a summary table of estate taxes by state.
Understanding State-Level Estate Taxes
Estate Tax vs. Inheritance Tax
Estate Tax: This tax is levied on the estate itself before distribution to the beneficiaries.
Inheritance Tax: This tax is levied on the beneficiaries who receive the estate’s assets. Only a few states impose inheritance taxes.
Exemption Thresholds
Each state sets its own exemption threshold, which is the amount below which no estate tax is owed. Estates valued above this threshold may owe estate taxes.
Tax Rates
States impose estate taxes at graduated rates, which means the tax rate increases as the value of the estate exceeds certain thresholds. Rates can range from a few percent to over 15%.
Filing Requirements
If the decedent's estate exceeds the state exemption threshold, an estate tax return must be filed with the state tax authority. Deadlines for filing vary by state.
Summary Table of State-Level Estate Taxes
State | Estate Tax | Exemption Threshold (2024) | Tax Rate Range | Notes |
Connecticut | Yes | $12.92 million | 10% - 12% |
|
District of Columbia | Yes | $4 million | 11.2% - 16% |
|
Hawaii | Yes | $5.49 million | 10% - 15.7% |
|
Illinois | Yes | $4 million | 0.8% - 16% |
|
Maine | Yes | $6.41 million | 8% - 12% |
|
Maryland | Yes | $5 million | 0.8% - 16% | Also has an inheritance tax |
Massachusetts | Yes | $1 million | 0.8% - 16% |
|
Minnesota | Yes | $3 million | 13% - 16% |
|
New York | Yes | $6.58 million | 3.06% - 16% |
|
Oregon | Yes | $1 million | 10% - 16% |
|
Rhode Island | Yes | $1.73 million | 0.8% - 16% |
|
Vermont | Yes | $5 million | 16% |
|
Washington | Yes | $2.193 million | 10% - 20% |
|
States Without Estate Taxes
Many states do not impose an estate tax. These states include:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Florida
Georgia
Idaho
Indiana
Iowa
Kansas
Kentucky
Louisiana
Michigan
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey (No estate tax, but has inheritance tax)
New Mexico
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania (No estate tax, but has inheritance tax)
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
West Virginia
Wisconsin
Wyoming
Key Points to Consider
Portability: Some states do not have portability of unused estate tax exemption between spouses. It’s important to check the specific rules of each state.
State-specific Forms and Deadlines: Each state has its own forms and deadlines for filing estate tax returns. Ensure you are aware of and comply with these requirements.
Potential Legislative Changes: State estate tax laws can change. Always verify current laws with a qualified estate attorney or tax professional.
Interaction with Federal Estate Tax: While the federal estate tax exemption is significantly higher ($12.92 million in 2024), state estate taxes can apply to estates that are exempt from federal estate tax.
Steps to Take as an Executor
Identify Applicable State Taxes: Determine if the decedent’s estate is subject to state estate taxes based on the state of residence and any real property locations.
Collect Necessary Information: Gather detailed information about all estate assets and their values.
Consult with Professionals: Work with an estate attorney and tax advisor to ensure compliance with state laws and to optimize tax strategies.
File Required Returns: File the state estate tax return and pay any taxes due within the state’s deadlines.
Communicate with Beneficiaries: Keep beneficiaries informed about potential tax liabilities and the status of tax filings.
By understanding and carefully managing state estate taxes, you can ensure that the estate settlement process is smooth and compliant with all legal requirements.