$3.5 Million Estate Tax Exemption? Not Quite

Sure, the current unified credit to avoid a FEDERAL estate tax is currently 3.5 million dollars per person (2009). (For more information on where we are and where we are going, see the posts above). Where you die can be equally, if not more, important. I found a great state-by-state list in the June 2009 Money Magazine. First let me explain Estate Tax from Inheritance Tax:

An inheritance tax is a tax imposed on the people (beneficiaries) who receive property from the deceased. The tax is calculated separately for each beneficiary, and each beneficiary is responsible for paying his or her own inheritance taxes. Those states that have inheritance taxes frequently tax spouses and children of the deceased at lower rates than other heirs.
An estate tax on the other hand is a tax imposed on the deceased's estate as a whole. The executor fills out a single estate tax return and pays the tax out of the estate's funds. The heirs will only be held liable for the tax if the executor fails to pay it.

Here are the exemption amounts, maximum tax rates and the type of tax that is being imposed by all 22 states that impose this tax:

• Connecticut: 2 million; 16%; estate tax
• DC: 1 million; 16%; estate tax
• Illinois: 2 million; 16%; estate tax
• Indiana: varies; 20%; inheritance tax
• Iowa: varies; 15%, inheritance tax
• Kansas: 1 million; 3%; estate tax
• Kentucky: varies; 16%; inheritance tax
• Maine: 1 million; 16%; estate tax
• Maryland: both taxes and top is 16%
• Massachusetts:1 million; 16%; estate tax
• Minnesota: 1 million; 16%; estate tax
• Nebraska: varies; 18%, inheritance tax
• New Jersey: both taxes, starts at $675k; 16%
• New York: 1 million; 16%; estate tax
• North Carolina: 3.5 million; 16%; estate tax
• Ohio: 338+k; 7%; estate tax
• Oklahoma: 3 million; 15%; estate tax
• Oregon: 1 million; 16%; estate tax (even though they call it inheritance tax).
• Pennsylvania: varies; 15%; inheritance tax
• Rhode Island: 675k; 16%; estate tax
• Tennessee: 1 million; 9.5%; estate tax
• Vermont: 3.5 million; 16%; estate tax
• Washington: 2 million; 19%; estate tax

This tax doesn't fall neatly into the stereotypical states you would expect the additional tax. Sure, the high tax states: Vermont, Maine, New York, Rhode Island, Ohio, and the so called Taxachusetts have the "death" tax. It is the states that typically have lower taxes, Tennessee, Oklahoma, and Washington State (that doesn't even have an income tax) that have taken advantage of these taxes. Very interesting.

My Best,

Jim