Best (and Worst) States for Entering the Afterlife

As the saying goes, nothing in life is certain except for death and taxes. So what are the best and worst states for estate taxes? Though the federal exemption is $11.2 million for an individual, there are 18 states (plus the District of Columbia) in the union that also have state or inheritance taxes of their own. 6 of those 18 states have inheritance taxes, which differ from estate taxes as they apply to the heirs or beneficiaries of the decedent, and the long arm of the law reaches them even if they live outside of that state. Those states are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, according to Moneytips.com. Spouses, however, are exempt from inheritance taxes.

The jurisdictions that have an estate tax are Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Yes, Maryland has both estate and inheritance taxes. Rhode Island has the lowest threshold at $850,000, which means any estate worth more than that amount will be subject to the state’s 16% estate tax. District of Columbia and Hawaii have the same exemption as the federal government, so any estates in those jurisdictions over $11.2 million will have to pay the 40% federal estate tax and the jurisdiction’s estate tax (16% and 15.7%, respectively).

So what are the best states to die in? The other 33 states that have neither state estate taxes nor state inheritance taxes. To take advantage of the tax benefits, you will need to establish residency in that state and know the requirements to do it. Florida’s rules are quite extensive and include filing a declaration of domicile, getting a driver’s license and registering your vehicles, opening bank accounts, registering to vote, notifying tax officials, applying for the homestead exemption and updating your estate plan.

See Bryce Sanders, Best (and Worst) States for Entering the Afterlife, Accounting Web, May 1, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.