Inquire into State “Death Taxes”

Even if you won’t owe federal estate tax, which currently applies only to estates above $3.5 million, your estate may still face state “death taxes.”  A total of 24 states and the District of Columbia impose estate taxes (similar to the federal tax) or inheritance taxes, in which heirs are divided into beneficiary classes.  Those with the closest relationship typically receive larger exemptions and pay tax at lower rates.  Distant relatives, or people unrelated to you, are taxed more heavily.

States that impose an estate tax may impact estates of much smaller size than the $3.5 million federal exemption.  States generally exempt charitable bequests from inheritance tax or provide charitable deductions against state estate tax.  Keep in mind that real estate you own in a different state may be taxable, even though your own state does not impose a “death tax.”  Ask your advisers about the state death tax situation in any state where you own property.

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