States With Estate Taxes
The great majority of states, including California, Texas, Florida, and Ohio, have no estate or inheritance tax. Some states, such as Massachusetts, New York, Oregon, and Minnesota have a $1 million exemption ($675,000 in New Jersey). Only Delaware and Hawaii follow the federal exemption of $5.3+ million. Unlike the federal limit most state exemptions are not inflation indexed. No state imposes an estate or inheritance tax for assets transferred between spouse either due to gift or inheritance.
States With An Estate Tax
State (top rate) | 2014 Exemption | State (top rate) | 2014 Exemption |
Connecticut* (12%) | $2 million | Minnesota* (16%) | $1 million |
D.C. (16%) | $1 million | New Jersey (16%) | $675,000 |
Delaware (16%) | $5.34 million | New York (16%) | $1 million |
Hawaii (16%) | $5.34 million | Oregon (16%) | $1 million |
Illinois (16%) | $2 million | Rhode Island (16%) | $910,725 |
Maine (12%) | $2 million | Tennessee (9.5%) | $2 million |
Maryland (16%) | $1 million | Vermont (16%) | $2.75 million |
Massachusetts (16%) | $1 million | Washington (20%) | $2 million |
* also has a gift tax
States With An Inheritance Tax
State (top rate) | 2014 Exemption | State (top rate) | 2014 Exemption |
Iowa (15%) | $0 | Nebraska (18%) | $10,000 |
Kentucky (16%) | $500 | New Jersey (16%) | $500 |
Maryland (10%) | $1,000 | Pennsylvania (15%) | $0 |
* exceptions often apply for close relatives
A-B Trusts
A state spousal exemption lower than the federal exemption (~ $5.3 million) means whatever the surviving spouse does not inherit may be subject to a state estate or inheritance tax—which means B Trust assets would be subject to a possible state tax. For example, in New York, when the first spouse dies in 2014 and $5.3 million goes into a B Trust, the estate would be subject to a > $431,000 state estate tax.
One way to avoid possible estate or inheritance taxes is to reduce the size of the estate by making annual gifts (note: no annual exemption amount if the check is made out directly to donee’s school or medical provider).
Out-of-State Property
Property located in another state can be tricky; state laws vary on this issue. In some states, a vacation home located in another state may be subject to a state estate tax even though decedent’s state of residence has no death duties. In states with an estate or inheritance tax, the exclusion formula may not fully apply to assets in another state.