Death Taxes

Death taxes are commonly referred to as INHERITANCE tax or ESTATE tax.  Some states have both, some states have neither and some states have one or the other.  For Federal purposes, there is only estate taxes to be concerned with. 

If you become subject to Federal Estate Tax, that means that you have a gross estate (which includes probate and non-probate assets as well as jointly-owned assets) in excess of approximately $11.5 million (indexed each year for inflation and scheduled to sunset in 2025 with the current legislation). 

More individuals are concerned with their state death tax laws and what would apply to their estates.  To provide a simple distinction between the two types of death taxes – Inheritance and Estate – generally an Inheritance Tax is based upon the relationship of the beneficiary to the decedent while Estate Tax is based upon the value. 

If you live in New Jersey, your estate could be subject to Inheritance Tax.   Estate Tax in New Jersey was abolished a few years ago.  If your estate passes to lineal heirs or charities, there is no Inheritance Tax.  However, any assets passing to non-lineal (collateral) heirs – siblings, aunts, uncles, non-relatives – would be subject to New Jersey Inheritance Tax at rates up to 16 percent.  (Life insurance payable to a designated beneficiary is not subject to New Jersey Inheritance Tax regardless of the relationship.) 

However, if you live across the River in Pennsylvania, your estate becomes subject to Pennsylvania Inheritance Tax for all assets passing to a non-spouse or charity.  Yes, even children will pay Inheritance Tax on what they inherit from their parents at the rate of 4,5 percent.  The top Inheritance Tax rate in Pennsylvania is 15 percent.  There is no Estate Tax in Pennsylvania. 

Our neighbor to the north, New York, imposes an Estate Tax of 3.06 to 16 percent on estates valued over $5.9 million. 

Looking at a couple of New England states, Connecticut has an Estate Tax of 10 to 12 percent on estates above $5.1 million; Maine has an Estate Tax of 8 to 12 percent on estates over $5.7 million; Estate Tax in Massachusetts ranges from 0.8 to 16 percent on estates above $1 million; Rhode Island has an Estate Tax ranging from 0.8 to 16 percent on estates above $1.6 million; and Vermont’s Estate Tax is 16 percent on estates above $2.8 million. 

Southern states such as the District of Columbia have an Estate Tax of 12 to 16 percent on estates above $5.8 million while Maryland has an Estate Tax of 0,8 to 16 percent on estates above $5 million as well as Inheritance Tax of up to 10 percent.  If you live in Kentucky, there is an Inheritance Tax of up to 15 percent.

There are other states which have Inheritance Taxes of up to 18 percent and Estate Taxes of up to 20 percent on estates above $2.2 million. 

As long as I have lived in New Jersey, I have consistently heard that we are a heavily-taxed state, but I recently saw a comparison of taxes imposed in each of the 50 states and DC, which included Sales Taxes, Income Taxes, Personal Property Taxes, Estate Taxes, Inheritance Taxes, Wage Taxes, Real Estate Taxes. I was quite surprised that, in the end, most states have approximately the same aggregate tax rates but they are just identified differently.  As the saying goes “There are only two things for certain in life – death and taxes”. 

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Kay Sowa

About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent, an Accredited Estate Planner®, and a Certified Trust and Financial Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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