10 States you do Not Want to be Caught Dead In
The prospect of dying is scary enough without having to consider the taxes your family will have to pay after you have already passed. As of this year, 5.43 million dollars in assets will be excluded from federal estate taxes and twice as much if you are married. State estate taxes, however, are moving in on your estate. The state includes your home and retirement accounts when they value your estate for taxes. If you want to protect your home and estate from scary death taxes, don’t be caught dead in these states.
1. New Jersey, Estate and Inheritance Taxes
First and foremost, avoid New Jersey. At the moment the exemption level on estate tax is $675,000 but it gets worse from there. Once the state estate tax rates kick in you are left paying 4.8% to as much as 16% on estates worth $10 million or more. Your spouse or civil union partner, parents, grandparents, children and family will not have to pay any state inheritance taxes but anyone who inherits your estate will. New Jersey lawmakers have discussed alleviating the weight of these estate taxes but so far, talking is all they have done. New Jersey is one of only two states to inflict estate as well as inheritance tax on their residents. Siblings, sons and daughters-in-law can receive a $25,000 per-person exception but any other heirs inheriting $500 or more will be taxed at rates as high as 16%, with rates increasing every year. Even the gifts you give to non-exempt friends or family three years before you die can be taxed.
2. Oregon, No Estate is Exempt
Oregon has moved up to the number two spot in our countdown because they decided not to increase the estate-tax exemption this year. They did not even adjust it for inflation. Even if you only have a $1 million estate, the tax can be used against you. Smaller estates can be hit with a 10% tax rate as well. Overall, estate tax rates can be as high as 16% on estates valued at $9.5 million or more; only spouses and registered domestic partners are exempt from the tax. Luckily for your heirs, they will not be taxed an inheritance tax.
3. Massachusetts, Only Charities are Safe
Massachusetts has worsened in terms of where it ranks in the top 10 places you do not want to die. It was originally in the number seven spot in 2013 but has now risen to the third spot because of its exemption rate. As soon as you have reached your first million in inheritance, it will be taxed. Estate tax rates are as low as 5.6% but can get as high as 16% on estates valued over $10 million. Only spouses are exempt from being taxed, not legal partners. Fortunately, there is no inheritance tax and the deceased can donate an unlimited amount of property to any qualified charity.
4. Minnesota, Exemptions Rate Continue to Climb
Minnesota is at number four as their exemption rate is climbing. By 2015, the exemption will be up to $1.4 million, increasing by $200,000 a year, capping off at two million by 2018. At the moment, however, the exemption level is still $1 million. The estate tax rates are up to 16% on estates worth at least $10 million. When Minnesota determines the worth of your estate, they include all those taxable gifts you made three years before your death. Only spouses are exempt from estate tax but anyone who inherits any of your estate will not be taxed. If you do die in Minnesota, at least you do not have to pay that 10% gift tax; it was repealed before anyone ever had to pay it.
5. Rhode Island, Only Spouses Benefit Here
Rhode Island has improved, but it is still not great. It used to be that the Ocean State was the second worst place in America to have an estate; now it is in 5th place. Even better news, Rhode islands’ ranking will continue to improve as the years go on as they are willing to adjust annually to inflation. Before the Rhode Island’s estate tax is applied only estates worth $921,655 or more will be taxed. By 2015, only estates of $1.5 million or more will be taxed. The estate tax rates are 16% on estates worth $10,000 or more. Only spouses are exempt from taxation but no one will be charged inheritance tax.
6. Maryland, Heirs Beware
Maryland is at number six as they are working harder every year to become a tax-friendly place to die. The current estate tax exemption applies to people with estates fewer than $1 million or $1.5 million in 2015. The estate-tax exemption will continue to improve until 2019. In 2019, the estate-tax exemption will meet the federal exemption, which is unheard of in many other states. At the moment the estate tax rates are ranked at 16% on estates worth $10 million or more. Spouses, children, daughters, son in laws, parents, grandparents and siblings are exempt from estate taxes but heirs are not. Heirs must pay at least 10% tax on property valued at $1,000 dollars or more. Even if you gave a gift two years prior to your death, your benefactors may be taxed.
7. Connecticut, Even Charitable Gifts are Taxable
Connecticut is especially unique in that it will tax you on gifts you give while you are still alive. Each year you give a chartable gift, you will be asked to fill out a gift tax return. These gift tax returns will identify each gift you make and the taxes that are due. Most rates for each gift range from 7.2% to 12%. As for your estate, you will not be taxed until you make at least two million. Estates valued at $10 million or more should expect a state estate tax rate of at least 12%. Neither spouses nor civil union partners will have to pay estate tax. There is no inheritance tax on any gifts you bestow no matter who you give them to in Connecticut.
8. Maine, Automatic Tax Liens
Maine allows exemption on estates under $2 million as well as exemption for spouses and inheritance tax. If you have an estate worth over $8 million, you can expect estate tax rates of at least 8% or as much as 12%. If you do not owe any estate tax in Maine, you must file an abbreviated version of a state tax return. This return will remove any automatic tax lien on the properties you own in Maine and any estate you claim.
9. Washington, Unusually High Estate Tax
Washington comes in at number nine but it does have unusually high estate tax rates. You can make just a little over $2 million before your estate will be taxed in Washington. If your estate is valued at $9 million or more you could be charged at least 15% or as much as 19%. Your spouse will not be inflicted with estate tax and neither will your heirs. The advantage of living in Washington is the additional deductions. If you run a family-owned business, you are eligible for a $2.5 million deduction worth under $6 million. Washington is aware of inflation and will make exemptions based on the current index.
10. New York, More Reasonable but Will Still Cost you Plenty
Finally there is New York, which is set at the number ten spot because the exemption level, estate tax rates and exemptions are relatively reasonable as compared to the nine states above. You will be exempt from state estate tax before you reach your first million. If your estate is worth $10 million you might be charged as little as 5.6% or as much as 10% in taxes. The good news is that neither your spouse nor your same-sex partner will be faced with estate tax. Best of all, your heirs will enjoy a completely tax free inheritance.
Tax laws are going to change drastically in 2015 and in the years to follow, especially for those with large estates. If you would prefer to enjoy your remaining years without worry over what your estate will amount to, avoid these states and protect your inheritance. Who knows, by 2019 things might be different. Until then, it is better to be safe than sorry.
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