Sixteen states and the District of Columbia levy an estate tax, with some taking a bigger piece of your estate than others. For this reason, it is critical to understand which states are going to take more out of your beneficiaries’ pockets when you die. So which states are the most costly?
Does your state have an estate tax? While the federal applicable exclusion for this tax (also called an inheritance or death tax) is $5.43 million in 2015 or $10.86 million for a married couple, many states have much lower thresholds. This casts a much wider net—meaning there’s a better chance that your estate will be subject to your state’s inheritence tax.
An article in The Times of Trentontitled, “N.J. ranks among worst states to die from an estate tax perspective,” points out that some states don’t index their exemption amount for inflation, which gradually increases the number of taxpayers affected.
Sixteen states and DC have an estate tax, with some taking a bigger chunk of your estate than others. That’s why it’s important to understand which states are going to take more out of your beneficiaries’ inheritance when you pass away.
Which state is Number One?
New Jersey! Of all of the states, New Jersey has the distinction of having the lowest exemption level for estate taxes ($675,000). Estate tax rates range from 4.8% to 16% of the total estate.
But wait! There’s more: not only does the Garden State levy an estate tax, it’s also one of only two states to assess a tax against the beneficiary in certain circumstances. The state also has a three-year look-back on gifts considered to be in contemplation of death—this could trigger more inheritance taxes!
Remember that spouses are exempted from paying estate or inheritance tax, and in some states, this exemption applies to civil unions.
So it is really at the death of the surviving spouse when assets are passed to other beneficiaries that estate taxes come to the forefront. Too many people wait until it is too late to establish a plan that addresses these taxes.
Develop an estate plan to help to reduce future estate taxes. Speak to your estate planning attorney to determine the most appropriate approach for you.
Reference: The Times of Trenton (April 25, 2015) “N.J. ranks among worst states to die from an estate tax perspective”