When someone passes away, their assets might be transferred to beneficiaries. If over a certain amount, the transferred assets can be subject to a federal inheritance tax. And, sometimes, can incur an estate tax at the state level.
In 2023, the federal tax only applies to assets above $12.9 million because of the federal exemption. The federal tax percentage ranges from 18% to 24%. This means that any assets below this threshold might be exempt from an estate tax upon your death. The IRS also allows for a deduction for the estate taxes you pay in your state. For state estate taxes, each state has different exemption levels.
In 2023, 12 states and the District of Columbia impose an estate tax. These states include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. The District of Columbia also has an estate tax. The threshold for the estate tax varies by state, with some states implementing a tax on estates valued at $1 million or less, while others have a threshold of $5 million or more.
There are 34 states that do not have an estate tax as of 2023. These states include Alabama, Alaska, Arizona, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming. In these states, the transfer of assets likely won’t be subject to a state-level tax, allowing for a larger percentage of the estate to be passed on to the beneficiaries.
However, if a state doesn’t have an estate tax there is still a possibility there are other fees or taxes associated with the transfer of assets. For example, an inheritance tax is different than an estate tax, and is based on the value of each asset independently. The estate tax includes the value of the entire estate. Some states also have taxes or fees that apply to the transfer of assets, such as a probate fee.
When planning an estate, it is important to consider the tax implications of the transfer of assets. Consulting with an estate planning attorney or tax professional can help you understand the tax implications of your estate plan and ensure that your wishes are carried out in the most tax-efficient manner.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
