Estate taxes in some states could shrink inheritance
By: Medora Lee
USA Today
..... Americans pay taxes throughout their lives. They may think they're done once they die. Not so. And estate tax can be levied on things the deceased owned or had certain interests in when they die. The tax is paid by the person's estate and can cut into inheritances.
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The federal government changes an estate tax but the threshold is high - a $13.99 million threshold, or exemption amount, per person in 2025 or $15 million in 2026 - so most people don't have to worry about it. In 2023, only 9,024 federal estate tax returns were filed, IRS data show. About 40% were taxable, but the revenue garnered was $44.4 billion.
..... However, a dozen states and Washington, DC, also levy estate taxes - and you may have to worry there. those state are Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.
..... States exemption levels are usually much lower than the federal government's making them easier to hit, said Sam Turko, vice president of Miser Wealth Partners.
..... For example, Oregon's expedition is only $1 million. "A number of homes alone are probably worth about that," Tutko said. "If you own a home and have $60,000 in checking and a 401(k), you're likely to exposed to estate tax."
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Moreover, Illinois and New York are "cliff states" where estate taxes exceeding a relatively low exemption threshold case the entire estate - not just the excess - to become taxable. A single dollar can trigger hundreds of thousandth of dollars in taxes, experts said.
..... Illinois's threshold for estate taxes is $4 million. there's no estate tax if the value of the estate is 44 million or less. However, anything above a $4 million triggers a progressive tax rate ranging from 0.8% to 16% on the entire estate, depending on the overall value.
..... New York's estate tax of 3.06% to 16% kicks in if the estate's value exceeds $7.16 million. If the estate is 105% or more of the exemption amount, the estate tax applies to the entire estate , not just what is above the boundary.
..... Maryland is the only state that has both an estate tax and an inheritance tax. an inheritance tax is usually paid by the person who receives as asset.
..... Estates that exceed 45 million in Maryland face estate taxes between 0.9% and 16%. Separately, anyone outside immediate family who receives an asset worth more than $1,000 from an estate may pay a 10% inheritance tax on their gift, even if no estate tax is due.
..... Other states with low thresholds to be wary of include:
* Oregon: $1 million the lowest in the country, "impaction not only the wealthiest households but also many upper middle-income families whose assets have appreciated in recent years," Wrote Andrey Yuhkov, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, in a blog post. The state's progressive tax rate ranges form 10% to 16%.
* Massachusetts: $2 million, with amounts above that taxed between 0.8% and 16.0%.
* Washington: $2.193 million if the person died by June 30, 2025, and $3 million if the person died between July 1 and December 31, 2025. Rates are between 10% and 25%, depending on how much the taxable estate exceeds the threshold.
* Minnesota: $3 million, with a tax rate rage f=of 13% to 16%.
..... The best way to avoid estate taxes is to plan while you're alive, experts said. Work with a team of professionals, including an attorney, accountant and financial adviser.
..... "That's not something to DIY, Tutko said.
..... Professionals know which assets count toward your taxable estate and can find ways to lower that value. Strategies may include annual tax-free gifting ($19,000 per person in 2025), an irrevocable trust that removes assets from a taxable estate, contributions to 529s and other educational accounts, or charitable donations, experts said.