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Death and Inheritance Taxes

March 9, 2011 | Filed Under Insurance, Retirement Savings, Tax Articles | Comments Off

A lot of attention has been paid to the Federal Estate Tax, but there are 20 states in the Union, including D.C. that have their own Estate or Inheritance Tax. Two states, Maryland and New Jersey, have both!

Many people are unaware that they may be living in a State that has it’s own Estate or Inheritance Tax. According to Constance Fontaine, an Associate Professor of Taxation at American College, “People are writing checks in the thousands who didn’t expect to be.”

Exemption levels are often low, so many beneficiaries are surprised the estate they inherited qualifies to be taxed.  In Ohio, for example, the Estate Tax exemption level is only $338,333.  In New Jersey, the exemption level is $0.

Estate tax rates are typically in the teens, unless you live in Minnesota. The top estate tax rate there is a whopping 41 percent for estates totaling more than $1 million.  Inheritance tax rates are usually in the teens as well.  In Indiana, however, you will pay 20% of your inheritance back to the state, if you inherit more than $150.

Many people in these 20 states are affected more by these state taxes than they are of the federal taxes.

Life insurance policies can sometimes be used to pay for the expected taxes, since their benefits are exempt from these taxes in most states.  However, you have to be careful the insurance benefit goes to an individual and not to the estate or executor.

Estate Tax                                2011 Exemption                                  2011 Top Rate

  • Connecticut                             $3,500,000                                          12
  • Deleware                                 $5,000,000                                          16
  • District of Columbia                 $1,000,000                                          16
  • Hawaii                                     $3,600,000                                          16
  • Maine                                      $1,000,000                                          16
  • Massachusetts                        $1,000,000                                          16
  • Minnesota                               $1,000,000                                          41
  • New Jersey                             $   675,000                                          16
  • New York                                $1,000,000                                          16
  • North Carolina                        $5,000,000                                          16
  • Ohio                                        $   338,333                                           7
  • Oregon                                   $1,000,000                                          16
  • Rhode Island                          $   850,000                                          16
  • Vermont                                  $2,750,000                                          16
  • Washington                            $2,000,000                                          19

Inheritance Tax                        2011 Exemption                                 2011 Top Rate

  • Indiana                                    $100                                                  20
  • Iowa                                        $0                                                      15
  • Kentucky                                 $500                                                  16
  • Maryland                                 $150                                                  10
  • Nebraska                                 $10,000                                             18
  • New Jersey                              $0                                                      16
  • Pennsylvania                           $0                                                      15
  • Tennessee                                $1,000,000                                        9.5

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