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
If My Spouse Dies, Can I Get Her Social Security?
If My Spouse Dies, Can I Get Her Social Security?

If a spouse dies, will the survivor collect the other’s share in addition to his or her own?

8 Secrets of an Expert Thrift Store Shopper
8 Secrets of an Expert Thrift Store Shopper

Here’s how a veteran thrift shopper scores the best deals — and turns a profit from them.

10 Ways to Nail Savings on Your Remodeling Project
10 Ways to Nail Savings on Your Remodeling Project

Here’s how to save on your next remodeling project with discounted materials and more tips and tricks.

Secret Ways to Save on Netflix
Secret Ways to Save on Netflix

These little-known savings tactics can help whittle down what you pay for your streaming video subscription — every month.

7 Small Appliances You Don’t Need — and What to Use Instead
7 Small Appliances You Don’t Need — and What to Use Instead

Here’s how to get the job done without blowing money — or losing counter space.

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.

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

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

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.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Longer Trips to These Stores May Raise COVID-19 Risk
Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

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.