Most states don't collect an estate tax. They leave this form of taxation to the federal government. The tax is imposed on the value of a decedent's estate over a certain exemption threshold, and the rate can be as high as 40 percent at the federal level—almost half of what's left of the estate after the exemption is applied. In other words, the government taxes your right to give at least some of your property to others after your death, and the tax comes out of your estate before anything is passed on to your heirs.
The federal government has a relatively high estate tax exemption—$11.7 million as of 2021. Only estates with values in excess of this amount are subject to the tax. Among the 13 states that do collect an estate tax at the state level, the threshold is typically far lower.
The situation has been anything but stagnant in the millennium, however. Here's a summary of some changes to state estate tax laws that have taken effect since 2000.
Changes to State-Level Estate Taxes
State legislatures review and amend their estate tax regulations from time to time. Below are examples of some recent changes:
- Delaware enacted an estate tax that was only supposed to be effective from July 1, 2009 through June 30, 2013, but the state's legislature acted to eliminate the sunset of the tax in the spring of 2013.
- State estate taxes were abolished by legislative action on January 1, 2010 in both Kansas and Oklahoma.
- Hawaii enacted a state estate tax effective May 1, 2010 and the law was later tweaked in May 2012 to provide that the estate tax exemption would be tied to the federal estate tax exemption for decedents who died after January 25, 2012.
- On January 1, 2010, state estate taxes were repealed in both Illinois and North Carolina due to a temporary repeal of the federal estate tax. Nonetheless, estate taxes came back in both states effective January 1, 2011.
- In several states, including New Hampshire and Virginia, bills were defeated in 2009 that would have enacted a state estate tax.
- Effective January 1, 2010, Rhode Island's estate tax exemption increased to $850,000 and it was indexed for inflation thereafter, meaning that it can gradually increase to correspond with the state of the economy in any given year. As of 2021, it had increased to $1.6 million.
- Effective January 1, 2011, Vermont's estate tax exemption increased to $2.75 million.
- Under Ohio budget laws, the estate tax was repealed as of January 1, 2013.
- Oregon's estate tax rates changed on January 1, 2012. Estates valued between $1 million and $2 million paid slightly less in estate taxes, and estates valued over $2 million paid more. Ballot Measure 84, which would have repealed Oregon's estate tax, was defeated in November 2012.
- Illinois' estate tax exemption increased to $3.5 million effective January 1, 2012, then to $4 million effective January 1, 2013.
- Maine's estate tax exemption increased to $2 million on January 1, 2013.
- In July 2013, North Carolina's estate tax was again repealed, this time retroactively to January 1, 2013.
- Washington's $2 million estate tax exemption was indexed for inflation beginning in 2014. It's $2.2 million as of 2021.
- Tennessee repealed its estate tax effective 2016.
- New Jersey phased out its estate tax. Barring further legislation to change that, the tax was eliminated as of 2018.
States That Do Not Collect State Estate Taxes
Here is the list of the jurisdictions that do not impose a state estate tax as of 2021:
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- South Carolina
- South Dakota
- West Virginia
NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax advice, please consult with an accountant. The information contained in this article is not tax advice and is not a substitute for tax advice.