“Thanks to the federal tax bill on President Donald Trump’s desk, the amount you can leave tax free to heirs will be a whopping $11.2 million in Hawaii, Maine and Washington, D.C. in 2018—and in Maryland in 2019, and in Connecticut in 2020.”
The big numbers are because many states have linked their state estate taxes to the federal amount. Since the GOP tax bill doubles the base federal estate tax exemption amount to a little over $11 million, indexed for inflation for tax years 2018 through 2025, those states will also increase their thresholds.
Forbes notes in its recent article, “Where Not To Die In 2018,” that along with this news, there are two states that are eliminating estate taxes in 2018: New Jersey and Delaware. New York is set to match the current federal exemption amount—a base of just over $5 million indexed for inflation—in 2019. Massachusetts and Oregon now tie for the lowest estate tax exemptions at $1 million per person.
The federal estate tax is 40% on assets above $11.2 million. This tax affects just 1,800 estates in the US next year. However, many more taxpayers pay state estate taxes. The number of state taxable estate tax returns in the state of Oregon alone was 1,563 in 2015. That state’s exemption is just $1 million.
The amount of money you can leave to your heirs without any state death tax depends on where you live and own property, to whom you’re leaving the money and whether your estate planning is current. The highest rates are about 16%, and for inheritance tax states, the tax can apply to the first dollar of assets, meaning there’s no credit like there is on federal estate taxes.
Seventeen states and Washington, D.C. will impose an estate tax or inheritance tax (Maryland has both) in 2018. Eight of these states and DC are making changes for 2018.
New Jersey has repealed its estate tax, but there’s a separate state inheritance tax that hits non-lineal heirs like siblings, nieces, and nephews. The Garden State now is in the group of other inheritance-tax only states: Nebraska, Iowa, Kentucky, and Pennsylvania.
Minnesota and Maryland have scheduled increases to their exemption amounts, and Connecticut just made scheduled changes to its exemption in its 2018 state budget. Washington and Rhode Island made minor upward adjustments in their exemption amounts, due to inflation indexing.
You should not believe that you don’t need to do estate planning because of these larger exemptions. There are plenty of non-tax reasons to plan, including designating a guardian for your minor children and naming someone to act on your behalf with a financial power of attorney, if you become incapacitated.
Speak with a qualified estate planning attorney to be sure your estate plan is up-to-date and addresses any tax law changes in your state.
Reference: Forbes (December 21, 2017) “Where Not To Die In 2018”