Check the background of this investment professional on FINRA’s BrokerCheck.

Beware of State Taxes and Rising Fees on Estates

State taxes may affect your estate, even if federal taxes don’t.

You have worked hard, managed your finances well and invested wisely to protect your future and to care for your family. It’s crucial not to lessen your vigilance when it comes to your estate. The American Taxpayer Relief Act has lulled some couples into a false sense of security. In 2019, an individual’s estate is exempt from federal taxes as long as it is under $11.4 million per person1, with a 40 percent tax rate applied to any amount over the exemption.

Beware of State Taxes

What some people don’t realize, however, is many states levy their own death taxes. In 2019, the District of Columbia and 12 states (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington) impose an estate tax. While exemption levels vary, they are typically considerably lower than the federal exemption. The good news is, some states are raising their exemptions to avoid losing wealthy retirees to more tax-friendly jurisdictions.

Another six states impose an inheritance tax (Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania). Similar to federal guidelines, bequests left to spouses are not taxed. Individuals who are distant relatives or not related often pay a higher rate. Maryland charges both estate and inheritance taxes.

Probate can also be a considerable expense. Although capped in some states, probate costs can reach 5 percent or more of an estate’s gross value – before taxes, debt and other expenses are paid. For example, New York’s probate costs range anywhere from 2 percent to 7 percent of an estate’s value and can be even more under certain circumstances.

There are ways to possibly reduce an estate’s taxes or fees: various types of trusts; transferring assets into a Limited Liability Company or Family Limited Partnership; gifting assets; putting money into a life insurance policy; even moving to another state. (If you maintain residences in two states, you will need to justify the state you claim as your primary residence.)

Estate planning can be complex, and it’s crucial to get it right. We would be happy to work with you, your attorney and tax professional to find solutions for your situation.



Written by Securities America for distribution by John Czajkowski, CFP®, MS. Securities America and its financial professionals do not provide tax or legal advice. Please consult with your tax or legal professional regarding your individual situation. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
Subscribe to get the HWM newsletter in your inbox:
Click a logo to login