Considering a Move? What to Know About Estate and Inheritance Taxes
If you are considering a move out of state, understanding inheritance and estate taxes among the states can be helpful in your decision-making process. This article explores the distinction between estate and inheritance taxes and provides an overview of the tax rates in various states. This information could assist you in evaluating how a potential move may impact your financial situation or that of your heirs.
Estate and Inheritance Tax Defined
Estate taxes and inheritance taxes are often confused, but they are different. An estate tax is a levy imposed on the estate of a deceased person before the assets are distributed to the beneficiaries.
In contrast, an inheritance tax is levied on the assets that beneficiaries receive from a deceased person’s estate. The tax rate for inheritance taxes typically depends on the beneficiary’s relationship to the deceased and the value of the assets received.
The federal government levies an estate tax but not an inheritance tax.
Estate Taxes
Currently, 12 states impose an estate tax:
Connecticut
Hawaii
Illinois
Maine
Maryland (levies both inheritance and estate taxes)
Massachusetts
Minnesota
New York
Oregon
Rhode Island
Vermont
Washington
Additionally, the District of Columbia levies an estate tax.
The estate tax rates among these jurisdictions vary considerably. Washington state and Hawaii have the highest estate tax rates, with a top rate of 20%. Meanwhile, Colorado, where our financial planning firm is located, does not impose an estate tax.
Nearby states have varying estate tax rates. For example, as mentioned, Washington state has the highest rate in the country, with a progressive rate structure ranging from 10% to 20%. Oregon, another neighboring state, also imposes an estate tax, with rates ranging from 10% to 16%.
Inheritance Taxes
Only six states impose an inheritance tax:
Iowa
Kentucky
Maryland
Nebraska
New Jersey
Pennsylvania.
The rates for inheritance taxes generally vary depending on the relationship between the beneficiary and the deceased person. More immediate relatives (such as spouses, children, and siblings) tend to face lower tax rates or are exempt. More distant relatives or non-related beneficiaries may be subject to higher rates.
Similar to estate taxes, Colorado does not impose an inheritance tax. Among nearby states, Nebraska has an inheritance tax with rates ranging from 1% for immediate family members to 18% for remote relatives and unrelated recipients.
Conclusion
Understanding inheritance and estate taxes is essential to evaluating the financial implications of a potential move out of state. Consulting with a fiduciary financial advisor can provide you with a comprehensive view of the impact of relocation on your finances.
Our Denver area financial planning firm helps clients make informed decisions about whether to move or stay in their home state based on their unique situations and goals. By considering the estate and inheritance tax landscape in various states, as well as other financial factors, you can better determine your ideal course of action.
We offer a complimentary 15-minute call to discuss your financial situation and concerns and share how we may be able to help.
This material was generated using artificial intelligence (ChatGPT) and edited by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
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