There are many factors which enter into your decision of where to live or retire. You may want to move to be closer to your grandchildren. You may want to be in the climate you prefer. One of the factors to include in your decision is taxation. As long as you live in the United States, you will be subject to federal estate taxation.
In fact, even if you live overseas, if you are a U.S. Citizen or green card holder, you’ll be subject to federal estate taxes. But, if you die in 2020, you wouldn’t owe federal estate taxes unless you had $11.58 million. Fortunately, or unfortunately, few of us have enough wealth to worry about that tax. Beginning in 2026, the federal estate tax will become a little more relevant as it will apply to amounts roughly one-half where it is now.
But there are states where you could owe an estate tax at a much lower level, even if you don’t owe a federal estate tax.
In fact, there are a dozen states and the District of Columbia which impose an estate tax at a level lower than the federal estate tax. But that doesn’t mean you cannot lower your tax burden.
Several states tax amounts of wealth over between $5 and $6 million. These jurisdictions include Connecticut, Hawaii, Maryland, Maine, and New York, as well as the District of Columbia. Two states tax amounts over between $4 and $5 million: Illinois and Vermont. Minnesota taxes amounts over $3 million. Washington taxes amounts over $2.193 million. Rhode Island taxes amounts over $1.58 million. Two states, Massachusetts and Oregon tax amounts over $1 million.
The typical state estate tax rate is around 10-15%. Here is a link to a survey of states with a separate estate tax.
In addition, a few states, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, impose an inheritance tax. An inheritance tax is based upon the relationship of the inheritor to the decedent. Depending upon the state, someone who is close enough might owe no inheritance tax while someone who isn’t a spouse or blood relative might owe 15% or more.
Here’s a link to a survey of state inheritance taxes.
State estate and inheritance taxes are one of the many considerations when choosing where to call home. They won’t impact your cost-of-living while you’re alive. But they could impact your ability to pass money to your loved ones.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128