Estate Taxes and Exemptions

Death Tax and Exemption

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July 5, 2016

Estate taxes and exemptions are currently in place across 15 states at the start of 2016, the district of columbia has levied estate tax, while six other states have opted for an inheritance tax with Maryland and New Jersey levying both taxes. The information below presents you with an overview of the each state collecting tax, the tax to be collected, the 2016 exemption and the top death tax rates of 2016.

Estate Taxes vs. Inheritance Taxes

Before proceeding it is imperative that a distinguish between estate tax and inheritance is outlined. This distinction is important as states such as Maryland and New Jersey collect taxes for both the estate and inheritance.

Estate taxes are taxes charged against the estate in its entirety.  This tax is independently charged regardless of those inheriting assets from the estate. Inheritance tax on the other hand, is the tax charged against the proportion of the estate inherited by the beneficiary based upon the relationship of the inheritor to the deceased. Different exemptions can apply based on the relationships between spouses, children or siblings and the deceased.

 

Estate tax map - Taxfoundation.org
Estate tax map – Source taxfoundation.org

The map above shows Washington with the highest maximum estate tax rate at 20%. A total of 11 estates have a maximum tax rate of 16%. Six states have inheritance with Nebraska the highest rate of18%, followed closely by Kentucky and New Jersey with a top rate of 16%.

Hawaii and Delaware have the highest exemption threshold at $5,430,000 (matching the federal exemption). District of Columbia and Massachusetts have opted for an exemption of $1,000,000 while New Jersey has the lowest estate exemption if just $675,000.

Of the six states with inheritance taxes, Nebraska has the highest top rate at 18 percent. Kentucky and New Jersey are close behind with top rates of 16 percent.

2016 will provide some changes for certain states, Tennessee has phased out its estate tax in its entirety. Maryland and New York on the other hand, have opted to increase their taxation exemption to match the federal exemption of $5,900,000 by the year 2019. Minnesota is in the process of doubling its exemption from $1 million to $2 million over five years.

 

 

State Exemption Rate% Min – Max
Connecticut $2,000,000 7.2% – 12%
Delaware $5,430,000 0.8% – 16%
Hawaii $5,430,000 0.8% – 16%
Illinois $4,000,000 0.8% – 16%
Maine $2,000,000 8.0% – 12%
Maryland $1,500,000 16%
Massachusetts $1,000,000 0.8% – 16%
Minessota $1,400,000 9.0% – 16%
New Jersey $ 675,000 0.8% – 16%
New York $2,062,500 3.06% – 16%
Oregon $1,000,000 0.8% – 16%
Rhode Island $1,500,000 0.8% – 16%
Tennessee $5,000,000 5.5% – 9.5%
Vermont $2,750,000 0.8% – 16%
Washington $2,054,000 10% – 20%
District of Columbia $1,000,000 0.8% – 16%

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