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Texas Tech Univ. School of Law

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Friday, February 25, 2011

The Worst States to Die In

Taxes With the new $5 million federal estate tax exemption, few people need to worry about federal estate taxes. However, many states have their own estate or inheritance taxes that kick in at a much lower level. Bill Bischoff wrote an article for SmartMoney on February 16, 2011 entitled Estate Taxes: The Worst Places to Die. The article lists the different exemption levels and rates for state estate and inheritance taxes:

State Estate Taxes:

  • Three states have exemptions of less than $1 million (Ohio at $338,333; New Jersey at $675,000; and Rhode Island at $850,000).
  • Six states have $1 million exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, and Oregon), and so does D.C.
  • Three states have $2 million exemptions (Illinois, Vermont, and Washington)
  • Two states have $3.5 million exemptions (Connecticut and Delaware).
  • Two states have $5 million exemptions (Hawaii and North Carolina).

State Inheritance Taxes:

  • Six states impose only inheritance taxes, which are assessed on the value of specific inherited assets in excess of the applicable exemption (estate tax is assessed on the entire value of an estate in excess of the applicable exemption).
  • The inheritance tax exemptions are zero or negligible--except in Tennessee which has a $1 million exemption.
  • The tax rates are 9.5% in Tennessee, 15% in Iowa and Pennsylvania, 16% in Kentucky, 18% in Nebraska, and 20% in Indiana.

The Bottom Line

The worst place to die is New Jersey with a combined effective estate and inheritance tax rate of 54.1%. Congrats to the Garden State! In second place is Maryland at 50.9%. Good try! In fact, none of the states mentioned here are good places to die, but some are significantly worse than others.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.

http://lawprofessors.typepad.com/trusts_estates_prof/2011/02/the-worst-states-to-die-in.html

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Comments

As a bonus, where the assets exceed the $675,000 exemption, NJ requires banks and brokers holding funds of the deceased to retain at least 50% of the date of death balance until the inheritance tax clearance is granted--which, I have heard, can take a year from filing the return, even with a non-taxable estate. You can add that to the list of NJ problems.

Posted by: Tom Ellwanger | Feb 26, 2011 2:12:26 PM

In Indiana, the 20% rate is the top rate for those not related to the decedent. The rate is 0% for a spouse, 1 - 10% for a lineal decedent (after $100,000 exemption), 7 - 15% for a sibling, niece, or nephew, and 10 - 20% for everyone else.

Posted by: R. J. Schoettle | Mar 1, 2011 3:19:00 PM

There is no such thing as a "combined estate and inheritance tax rate in New Jersey". The estate computes the two taxes separately and only pays the higher of the two. NJ still is bad, but not that bad.

Posted by: John | Sep 5, 2013 2:52:33 PM

I'm going through this right now with BOTH late parents in the Nazi state of Virginia! They run you around in circles, by requesting additional documentation (that they already know) just to show you that they are in control over you, by acting like its THEIR money and not yours!

Posted by: Robert Heintze | Oct 3, 2013 1:09:12 PM

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