While much attention has been focused on the new federal estate tax, clients working on estate planning also need to know that many states have estate or inheritance taxes.
Exemptions vary, and some states have laws that set exemption rates that are not as favorable as the federal law. The federal estate tax is set at 35% with a $5 million exemption for the next two years.
But in 14 states and the District of Columbia, there are state estate taxes to consider, and many have exemptions of $1 million or less. Tax rates vary, and states that have an estate tax include Connecticut, Delaware, Hawaii, Maine, Maryland, Massachusetts, Minnesota, New York, New Jersey, North Carolina, Ohio, Rhode Island, Vermont, and Washington.
Some states have exemption amounts that are less than the $5 million set in the federal law. For example, Maine, Maryland, and Massachusetts, as well as the District of Columbia, each have an exemption level of $1 million.
In addition, some states have an inheritance tax that is paid by the beneficiary, and not the estate. Taxes vary depending on whether the beneficiary is a spouse, family member, or someone outside the family. States with an inheritance tax include Kentucky, Indiana, Iowa, Louisiana, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania, and Tennessee.
With the federal estate law in place, it is a good opportunity to review estate planning with clients, and ensure that they are aware of any state obligations that may have an impact on their legacy plans.
Source: Bankrate.com.
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