17 States With Inheritance or Estate Taxes — or Both

Grandfather and granddaughter
Photo by LightField Studios / Shutterstock.com

Getting to retirement with a fat nest egg is a big accomplishment. All those years of toil and saving have paid off.

If you are exceedingly fortunate and plan to pass on a big inheritance to your children or a charity, you still have one big retirement-planning mission remaining: protecting a chunk of your wealth from disappearing into the coffers of state and federal governments.

Depending on where you live, achieving that goal can be difficult, or relatively easy. In fact, 33 states charge no estate or inheritance taxes.

But 12 states and the District of Columbia charge estate taxes, and six charge inheritance taxes.

And pity the poor residents of the alleged “Free State” — Maryland levies both types of taxes.

The full list of such states, and the District of Columbia, in each category is as follows:

States that charge estate taxes

  • Connecticut
  • District of Columbia
  • Hawaii
  • Illinois
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • New York
  • Oregon
  • Rhode Island
  • Vermont
  • Washington

States that charge inheritance taxes

  • Iowa
  • Kentucky
  • Maryland
  • Nebraska
  • New Jersey
  • Pennsylvania

Estate taxes versus inheritance taxes

Your estate is taxed based on the total value of everything you own at the time of your death. According to Nolo:

“This includes all the obvious assets, like real estate and bank accounts, plus some that aren’t so obvious — for example, the proceeds of a life insurance policy that the deceased person owned.”

By contrast, inheritance taxes depend on who inherits your assets. For example, taxes may not be due if your spouse inherits your assets, but taxes might be due if the assets go to your children or someone more distantly related to you.

If you live in one of the states on the two lists above, don’t panic. Estate taxes typically are assessed only if your assets exceed a certain level, such as $1 million. And some states have much higher thresholds.

As for inheritance taxes, rates typically are modest if you leave your assets to close relatives. For example, Nolo says that in Nebraska, close relatives who inherit $40,000 or less face no taxes, and just 1% is charged on assets over that amount left to those family members.

However, taxes of 13% will be due in Nebraska on amounts above $15,000 left to more distant relatives, and 18% will be due on amounts above $10,000 that you leave to others, such as nonrelatives or organizations.

Avoiding these taxes

The higher exemption levels associated with most state estate and inheritance tax systems are not much solace to people with very large estates who hope to pass down their cash.

So, what can you do if you are in that fortunate circumstance? You could move to a new state or accept your fate, while taking solace in the knowledge that the 2017 federal tax legislation significantly raised the exemption levels for federal estate taxes.

For the 2020 tax year, federal estate taxes will not apply to your estate unless your assets exceed $11.58 million — then, the tax applies only to the amount above $11.58 million.

Creating a trust is another option for those concerned about a tax bite. Trusts are often used to bypass estate taxes, as Money Talks News founder Stacy Johnson details in “Ask Stacy: I’m Afraid to Leave an Inheritance for My Kids — What Should I Do?

For more tips on protecting your assets from taxes, check out “8 Documents That Are Essential to Planning Your Estate.” And if you’re looking for a good deal on the estate documents you need, head over to the website of Money Talks News partner Rocket Lawyer.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
12 Ways to Maximize Your Social Security Checks
12 Ways to Maximize Your Social Security Checks

You may be eligible for more retirement income than you realize.

16 Products That Solve Everyday Annoyances
16 Products That Solve Everyday Annoyances

These items put an end to the daily irritations that bug you the most.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

10 Colleges That Offer Free Tuition for Seniors
10 Colleges That Offer Free Tuition for Seniors

These schools let retirement-age students study, tuition-free, while earning college credit.

21 Thrift Store Gems You Can Cash In On
21 Thrift Store Gems You Can Cash In On

Here’s what to look for at that overstuffed thrift store — and how you can make money from it.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Types of Retirement Income That Are Not Taxable
10 Types of Retirement Income That Are Not Taxable

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.