State-Level Estate Taxes and Exemptions
State Estate Tax Exemptions and Top Rates
It can cost a great deal of money to die—at least if you're reasonably wealthy. Estates valued at more than the federal exemption of $5.49 million can expect to pay up to 40 percent in estate taxes at the federal level as of November 2017, although Congress is debating whether to eliminate this tax.
Fourteen states and the District of Columbia also impose estate taxes of their own as of 2017. Here's a summary of these state taxes and the changes that have taken effect in recent years.
Delaware enacted an estate tax that was only supposed to be effective for deaths occurring between July 1, 2009, and July 1, 2013, but the Delaware legislature eliminated the sunset of the tax in the spring of 2013 so it remains in effect. The tax mirrors that at the federal level as of 2017. Estates with values of up to $5.49 million are exempt, and the top tax rate on any value over this threshold is 16 percent.
Rhode Island and Connecticut
The Rhode Island estate tax exemption was adjusted for deaths occurring on or after January 1, 2011, based on the percentage increase in the Consumer Price Index rounded to the nearest $5. In 2015, the exemption increased to $1.5 million where it remains in 2017. The top tax rate is 16 percent.
On May 4, 2011, the Connecticut estate tax exemption was retroactively decreased from $3.5 million back down to $2 million for deaths occurring on or after January 1, 2011. It's still at $2 million as of 2017. The top tax rate is 12 percent.
Kansas and Oklahoma
Two states saw their state estate taxes disappear on January 1, 2010, due to state legislative actions: Kansas and Oklahoma.
S.L. 2011-330 was signed into law by North Carolina Governor Beverly Perdue on June 27, 2011. This law clarified that the North Carolina estate tax does not apply to the estates of decedents who died in 2010, but would apply to the estates of those who die on or after January 1, 2011. It set a $5 million exemption which was indexed for inflation, meaning that it could increase periodically to keep pace with the economy. Then, in July 2013, the North Carolina estate tax was repealed retroactively to January 1, 2013.
Illinois saw its estate tax disappear on January 1, 2010, due to the repeal of the federal estate tax. Then the federal tax was retroactively reinstated, but Illinois' tax did not automatically return. The Illinois legislature had to act quickly at the beginning of 2011 to reinstate the tax for the 2011 tax year with a $2 million exemption. Then the legislature acted in December 2011 to increase the exemption to $3.5 million in 2012 and to $4 million in 2013 and future years. The exemption remains at $4 million in 2017 and the top tax rate is 16 percent.
Hawaii brought back its state estate tax effective May 1, 2010. Although the Hawaii estate tax exemption was set at $3.5 million for deaths occurring before January 26, 2012, the tax didn't actually kick in until an estate exceeded $3.6 million in value. Then, in May 2012, Hawaii tweaked its estate tax laws to provide that the exemption will be tied to the federal estate tax exemption for decedents dying after January 25, 2012.
In addition, Hawaii appears to be the first and only state which allows "portability of the estate tax exemption" between spouses at the state level. This effectively allows the first spouse who dies to transfer any unused portion of his exemption to his spouse, increasing hers. The state still matches the $5.49 million federal exemption as of 2017, and the top tax rate is 16 percent.
Vermont's estate tax exemption increased to $2.75 million effective January 1, 2011. It remains there as of 2017 and the state has a top tax rate of 16 percent.
Ohio Governor John Kasich signed the state's 2012-13 budget into law on June 30, 2011. It eliminated the Ohio estate tax effective for deaths occurring on or after January 1, 2013.
The name of Oregon's death tax changed from an "inheritance tax" to an "estate tax" on January 1, 2012. The Oregon estate tax exemption, formerly the inheritance tax exemption, remained at $1 million for 2012 and future years, and it's still at $1 million in 2017. Currently, the tax only applies to the value of an estate in excess of $1 million. Under the prior law, it applied to the entire estate when it exceeded the $1 million threshold.
The estate tax rates also changed in 2012. The majority of estates valued between $1 and $2 million paid slightly less in taxes and those valued over $2 million paid slightly more. Oregon Ballot Measure 84, which would have repealed Oregon's estate tax by 2016, was defeated on November 6, 2012, and it doesn't appear that Oregon's estate tax will be repealed anytime soon.
Maine's estate tax exemption increased to $2 million effective January 1, 2013, and the tax rate was reduced. As of 2017, the exemption has increased again to match that of the federal government at $5.49 million, and the top rate is currently 12 percent.
In May 2012, Tennessee repealed its state gift tax retroactively to January 1, 2012. In addition, the Tennessee estate tax, referred to as an inheritance tax in the state's statutes, was slated to be phased out by 2016. That happened, so Tennessee no longer has an estate tax.
Washington tweaked its state estate tax laws in several ways in June 2013 to affect the estates of decedents who died on or after January 1, 2014. First, the state's $2 million exemption was indexed for inflation on an annual basis. Then the estate tax rates for the top four brackets increased by one percentage point. Finally, certain family-owned businesses received an estate tax exemption of up to $2.5 million. As of 2017, the exemption sits at 2.129 million and the top tax rate is 20 percent.
In an unusual move, Minnesota enacted a state gift tax that went into effect on July 1, 2013. The state additionally tweaked its estate tax laws at that time as they applied to nonresidents who owned real estate in Minnesota. The new legislation included any Minnesota property that was held in a pass-through entity such as an S corporation, a partnership or a multi-member LLC taxed as a partnership, a single-member LLC or similar entity, or a trust in a nonresident's estate.
Then, in another unusual move, Governor Mark Dayton signed legislation on March 21, 2014, which repealed the state gift tax retroactively. The state estate tax exemption was retroactively increased to $1.2 million for all 2014 deaths and the estate tax rate was tweaked so that the first dollars are taxed at a 9 percent rate which then maxed out at 16 percent. The estate tax exemption was to increase in $200,000 increments so that it reaches $2 million by 2018. That puts it at 1.8 million in 2017.
The new law also allows married couples to use ABC trust planning to defer the payment of all estate taxes until after the death of the second spouse. Finally, the law taxing a nonresident decedent's interest in a pass-through entity was also modified to exclude certain publicly traded entities, but it still applies to entities taxed as partnerships or S corporations that own a closely-held business, farm, or cabin.
On April 1, 2014, New York made significant changes to its estate tax laws by increasing the state's exemption to $2,062,500. The exemption was then scheduled to continue to increase on an annual basis until it matches the federal estate tax exemption in 2019. It's at 5.25 million as of 2017, with a top tax rate of 16 percent.
New Jersey's estate tax will be repealed on January 1, 2018. The estates of decedents who die before that date are taxed at 16 percent on values over $2 million.
The District of Columbia
Washington, D.C continues to tax estates at a top rate of 16 percent. The exemption is $1 million as of 2017.
Maryland's estate tax exemption remains steady at $3 million. The top tax rate is 16 percent.
Massachusetts also has an estate tax at a top rate of 16 percent on estates valued at more than $1 million.
NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney. The information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.