Info You Need to Know – Estate Taxes Levied at Both the State and Federal Level

I recently published a blog discussing the potential modifications to the federal estate tax and the push to have the federal estate tax exemption revert to “historic norms.” It appears some states may be targeting their own estate tax exemptions in an effort to raise additional revenue. For example, the D.C. Council approved the Budget Support Act of 2020 containing a number of significant tax changes, including a change to the D.C. estate tax exemption. Specifically, when someone passes away in D.C. on or after December 31, 2020, their estate would be exempt from the D.C. estate tax up to $4 million. This is a notable reduction from the current exemption for D.C. residents of $5.6 million. Though, the D.C. Council also included annual cost-of-living increases for the exemption amount.

State-Level Estate Taxes

When it comes to estate taxes, much of the spotlight winds up going to the federal estate tax to the point where many folks fail to properly plan and prepare for potential state-level estate taxes. In fact, approximately 12 states, along with the District of Columbia, impose some form of an estate tax. Furthermore, six states impose a separate inheritance tax. If you reside in Maryland, you are subjected to BOTH an estate tax and an inheritance tax.

Washington State and Hawaii both levy a 20 percent estate tax, which is the highest state-level estate tax rate in the country. Eight states, along with the District of Columbia, are the next highest with a top estate tax rate of 16 percent. D.C. previously had the highest estate tax exemption, but that will no longer be the case due to the passage of the Budget Support Act.

Of the six states with inheritance taxes, Nebraska has the highest top rate at 18 percent. Maryland imposes the lowest top rate at 10 percent. All six states exempt spouses, and some fully or partially exempt immediate relatives.

Proper Planning is Key to Protect Your Estate from Excessive Taxation

As you can see, your estate could be subjected to potential taxation at the state and federal level. This is why it is so important to speak with an experienced trust and estate planning attorney so you can ensure your estate is not hit with a large, unexpected tax bill.

To learn more about strategies to help protect your estate, contact InSight Law today.