Some states have an estate tax, which may apply to your assets upon your death. At the time of this writing, only twelve states and Washington, D.C., have an estate tax.
The Federal government has a separate estate tax. This can apply to taxpayers in all states whose assets are above that year’s federal exemption amount.
Estate tax, sometimes referred to as a “death” tax, is a tax that the state or federal government might levy on your estate after you die. In most instances, they calculate the value of your assets using the current market value, and after your estate pays your debts. Many people aren’t subject to estate tax if they are above the exemption amounts, either federally or if they live in a state with estate tax.
If you are married and your estate transfers to your spouse, they will not have an estate tax in most cases because of the unlimited marital deduction.
Inheritance tax differs from estate tax. It applies to your assets once they transfer to a beneficiary. There is no federal inheritance tax. Maine is the only state that has both inheritance tax and estate tax as of January 2023.
The following states have an estate tax, in addition to Washington, D.C.
The exemption thresholds range from $1 million in Massachusetts and Oregon to $4 million in Washington, D.C., and Illinois. Currently, Connecticut has one of the highest estate tax exemptions, set at $9.1 million. The estate tax percentages range from less than 1% to about 16%.
In 2023, the tax generally only applies to assets above $12.9 million because of the federal exemption. The 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.
State and federal governments re-evaluate their estate tax rates and policies annually. It is important to find the current information specific to your financial situation when you are completing your estate plan. We always recommend consulting with a tax professional.