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 since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
As of January 1, 2014, 19 states and the District of Columbia collect a state death tax. Below is a chart that lists which states collect state estate taxes and/or state inheritance taxes along with the 2014 exemption and top death tax rate. To view the state estate tax exemptions for 2009 through 2014, refer to the State Estate Tax and Exemption Chart.
Estate Taxes vs. Inheritance Taxes
While it may just seem to be semantics, there is a real difference between an estate tax and an inheritance tax:
- An estate tax is charged against the entire estate regardless of who inherits the estate.
- An inheritance tax is only charged against the shares of certain beneficiaries who inherit an estate.
In fact, the distinction between an estate tax and an inheritance tax becomes very relevant in the states of Maryland and New Jersey, which collect both types of taxes. And in Tennessee, the state death tax is referred to an "inheritance tax" in the state statutes, but it really is an estate tax since it is calculated based on the entire value of the estate, not on who inherits the estate.
Summary of Changes to State Estate Tax and Inheritance Tax Laws
Below is a summary of the changes that took effect with regard to state estate tax and inheritance tax laws over the past few years.
- Delaware enacted a state estate tax which was only supposed to be effective for deaths occurring between July 1, 2009 and June 30, 2013. Nonetheless, in the spring of 2013 the Delaware legislature acted to eliminate the sunset of the tax.
- Two states saw their state estate tax disappear on January 1, 2010, due to state legislative action: Kansas and Oklahoma.
- On June 27, 2011, S.L. 2011-330 was signed into law by North Carolina Governor Beverly Perdue. This law clarifies that the North Carolina estate tax did not apply to the estates of decedents who died in 2010 but applied to the estates of decedents dying on or after January 1, 2011 with a $5,000,000 exemption, which was to be indexed for inflation in 2012 and later years. Nonetheless, in July 2013 North Carolina retroactively repealed its state estate tax back to January 1, 2013.
- Illinois saw its estate tax disappear on January 1, 2010 due to repeal of the federal estate tax, and despite the retroactive reinstatement of the federal estate tax, Illinois' tax did not come back automatically. Nonetheless, the Illinois legislature acted quickly at the beginning of 2011 to reinstate the Illinois estate tax for the 2011 tax year with a $2,000,000 exemption. However, in December 2011 the Illinois legislature acted to increase the exemption to $3,500,000 in 2012 and $4,000,000 in 2013 and future years.
- Hawaii brought back its state estate tax effective May 1, 2010. In May 2012, Hawaii tweaked its estate tax laws to provide that the Hawaii estate tax exemption will be tied to the federal estate tax exemption for decedents dying after January 25, 2012.
- The Rhode Island estate tax exemption was increased to $850,000 in 2010 and will be adjusted for deaths occurring on or after January 1, 2011 based on the percentage increase in the Consumer Price Index rounded to the nearest $5.00.
- Vermont's estate tax exemption was increased to $2,750,000 effective January 1, 2011.
- On May 4, 2011, the Connecticut estate tax exemption was retroactively decreased from $3,500,000 back down to $2,000,000 for deaths occurring on or after January 1, 2011.
- On June 30, 2011, Ohio Governor John Kasich signed the 2012 - 2013 budget into law, which eliminated the Ohio estate tax effective for deaths occurring on or after January 1, 2013.
- On January 1, 2012, the name of Oregon's death tax changed from an "inheritance tax" to an "estate tax". In addition, while the Oregon estate tax exemption (formerly inheritance tax exemption) will remain at $1,000,000 for 2012 and future years, the tax will only apply to the value of an estate in excess of $1,000,000 (under prior law once an estate exceeded $1,000,000 the tax applied to the entire estate). The estate tax rates have also been changed for 2012 and future years such that the majority of estates valued between $1,000,000 and $2,000,000 will pay slightly less in taxes and estates valued over $2,000,000 will pay slightly more in taxes. Note that on November 6, 2012, Oregon Ballot Measure 84, which would have repealed Oregon's estate tax by 2016, was defeated, so it does not appear that Oregon's estate tax will be repealed any time soon.
- Effective January 1, 2013, Maine's estate tax exemption was increased to $2,000,000 (up from $1,000,000 in prior years) and the estate tax rate was lowered.
- 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 Tennessee statutes as mentioned above) will be phased out by 2016.
- In June 2013, Washington tweaked its state estate tax laws in several ways that will affect the estates of decedents who die on or after January 1, 2014. First, the $2,000,000 exemption will be indexed for inflation on an annual basis, which means in 2014 the inflation-adjusted exemption is $2,012,000. Second, the estate tax rates for the top four brackets have increased by one percentage point. Finally, certain family-owned businesses will now receive an estate tax exemption of up to $2,500,000.
- In an unusual move, Minnesota enacted a state gift tax that went into effect on July 1, 2013. Aside from this, Minnesota tweaked its estate tax laws as they are applied to nonresidents who own real estate in Minnesota. The new legislation includes Minnesota property held in a pass-through entity such as an S corporation, a partnership (including a multi-member LLC taxed as a partnership), a single-member LLC or similar entity, or a trust in a nonresident's estate. But in another unusual move, Governor Mark Dayton signed legislation on March 21, 2014 which repealed the state gift tax retroactively. In addition, the state estate tax exemption was retroactively increased to $1,200,000 for all 2014 deaths and the estate tax rate was tweaked so that the first dollars are taxed at a 9% rate which maxes out at 16%. The estate tax exemption will then be increased in $200,000 increments so that it reaches $2,000,000 by 2018. The new law also allows married couples to use ABC Trust planning in order 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.
- In May 2013, Indiana repealed its state inheritance tax retroactively back to January 1, 2013.
- On April 1, 2014, New York made significant changes to its estate tax laws by increasing the state estate exemption to $2,062,500. The exemption will then continue to increase on an annual basis until it matches the federal estate tax exemption in 2019.
- On May 15, 2014, Maryland Governor Martin O'Malley signed H.B. 739, Maryland Estate Tax - Unified Credit, into law. This new law repeals and then re-enacts Maryland's estate tax such that the state estate tax exemption will increase beginning in 2015 until it equals the federal estate tax exemption in 2019. In addition, beginning in 2019 the Maryland estate tax exemption will become portable between married couples. Refer to Maryland Estate Tax Changes Go Into Effect in 2015 for more information about these changes.
*Also collects a state gift tax
**Referred to as an "inheritance tax" in state statutes, but it's really an estate tax
***Exemption is adjusted for inflation on an annual basis
****The exemption is $1,000,000 prior to April 1, 2014, and $2,062,500 effective April 1, 2014
2014 State Estate Tax and Inheritance Tax Chart
|State||Type of Death Tax||2014 Exemption||2014 Top Tax Rate|
|District of Columbia||Estate Tax||$1,000,000||16%|
|Kentucky||Inheritance Tax||Up to $1,000||16%|
|Maryland||Estate Tax, Inheritance Tax||$1,000,000, $0||16%, 10%|
|Nebraska||Inheritance Tax||Up to $40,000||18%|
|New Jersey||Estate Tax, Inheritance Tax||$675,000, Up to $25,000||16%, 16%|
|New York||Estate Tax||****$1,000,000 or $2,062,500||16%|
|***Rhode Island||Estate Tax||$921,655||16%|