In 2023, the federal estate tax exemption increased to $12.92 million for individuals or $25.84 million for married couples. Due to the high amount of this exemption, this does not affect many of our Missouri clients and contacts. However, seventeen states and Washington DC have their own state estate or inheritance tax with exemptions substantially less than the federal estate tax.
ESTATE VS. INHERITANCE
Although they are similar, and often lumped together, inheritance and estate mean different things. Inheritance refers to the assets a person leaves to others after they die including cash, investments, real estate, and personal property. An estate is the collective sum of an individual’s net worth including all property, possessions and other assets owned when they die.
HOW ESTATE & INHERITANCE TAXES ARE CALCULATED
Estate taxes apply to the portion that exceeds the exemption amount. For estate taxes, there are federal exemptions as well as thirteen state estate tax exemptions in place. For example, if you lived in Maryland, the value of your estate that exceeds $5 million would be taxed at a rate between .8% – 16%.
If you receive an inheritance upon someone’s death, you may be subject to paying tax on it. There is no federal inheritance tax in the United States. However, there is an inheritance tax in six states, and individuals inheriting assets are taxed accordingly. Keep in mind, the exemption you receive and the rate charged may vary depending on your relationship with the deceased. For example, if you inherit assets from a spouse, parent, or child that lived in Kentucky you would be exempt from paying the inheritance tax. However, if you received an inheritance from someone who was not as directly related, there would be a 4% – 16% tax on the inheritance.
Most states with inheritance taxes exempt the tax for most direct family members (parents, spouses, siblings, children, grandchildren). In Pennsylvania and Nebraska, only spouses are exempt from the tax.
Note: There is a federal estate tax credit for state estate tax, assuming a taxable federal estate tax
WHO PAYS THE TAX?
- The estate tax – paid by the estate / assets of the person who passes away
- Inheritance tax – paid by the person receiving assets following someone else’s death
In some situations, an estate could be subject to both estate and inheritance taxes if they exceed the exemption. Take a look at the following charts to see the varied exemptions and exclusions and rates for state estate and inheritance taxes.
STATE ESTATE TAXES
|
State |
Exemption |
Rate |
|
Connecticut |
$12.92 million |
12% |
|
Hawaii |
$5.49 million |
10% – 20% |
|
Illinois |
$4 million |
.8% – 16% |
|
Maine |
$6.41 million |
8% – 12% |
|
Maryland |
$5 million |
.8% – 16% |
|
Massachusetts |
$1 million |
.8% – 16% |
|
Minnesota |
$3 million |
13% – 16% |
|
New York |
$6.58 million |
3.06% – 16% |
|
Oregon |
$1 million |
10% – 16% |
|
Rhode Island |
$1.733 million |
.8% – 16% |
|
Vermont |
$5 million |
16% |
|
Washington |
$2.193 million |
10% – 20% |
|
Washington D.C. |
$4.529 million |
11.2% – 16% |
STATE INHERITANCE TAXES
|
State |
Exclusions |
Rate |
|
Iowa |
$25k & most direct family |
2% – 6% |
|
Kentucky |
$1k & most direct family |
4% – 16% |
|
Maryland |
Most direct family |
10% |
|
Nebraska |
$100k & spouse |
1% – 15% |
|
New Jersey |
Most direct family |
11% – 16% |
|
Pennsylvania |
Spouse |
4.5% – 15% |
Contact us to discuss your individual estate planning questions and strategies.
