I get it. Nobody likes taxes. Income taxes are bad enough, but then you have to consider estate taxes.
Thankfully, less than 1% of Americans will have an estate tax issue. For 2022, the federal estate tax exemption is $12,060,000 and the top federal estate tax rate is 40%.
But don’t forget estate tax that is assessed at the state level. There are actually twelve states (along with the District of Columbia) that levy an estate tax, and most have exemption amounts that are lower than the federal amount.
Estate taxes are based on the fair value of the deceased person’s assets that exceed the exemption amount. If you think you could have a problem, you probably should speak with an estate attorney so you can do some planning.
Table of contents
Estate Tax Rates by State
In the table below, we will detail which states (along with the District of Columbia) have an estate tax. For each of the states with an estate tax, we will show you the tax rates and exemption amounts. Here you go:
|State||Estate Tax||Rate||Exemption Amount|
|New York||Yes||16%||$5.74 Million|
|Washington DC||Yes||16%||$4 Million|
Examining Each State with Estate Tax
Now that we have summarized all the states in the above table, let’s take a closer look at the specific states that impose a tax.
Of all the states, Connecticut has the highest exemption amount of $9.1 million. The estate tax rate is based on the value of the decedent’s entire taxable estate. The tax rate ranges from 11.6% to 12% for 2022. Starting in 2023, it will be a 12% fixed rate. Take a look at the table below:
Thankfully, there is no inheritance tax in Connecticut. However, Connecticut is the only state in the country that imposes its own state-level gift tax. The lifetime exemption amount is the same as the estate tax exemption amount. There is also an annual exemption of $16,000 per person. This is the same yearly exemption amount for federal tax purposes.
We know there is a lot of confusion surrounding the Connecticut estate tax return. Adding to the problems is that very few CPAs actually know how to complete the form. This really should not be that amazing when you consider that so few taxpayers are actually subject to it. Nevertheless, we thought it might help to list out a few key steps.
Connecticut uses one form for both the estate tax and gift tax. The form numbers mirror the federal form numbers for simplicity. You can actually see the form here:
Hawaii has an estate tax exemption of $5.49 million. For any amount above $5.49 million, the estate tax rate starts at 10% and goes up to 20%. This is sure a lot better than the federal rate of 40%. The following table summarizes the tax brackets:
What about portability in Hawaii? The state has one thing in common with the IRS in that it allows a surviving spouse to use the remaining unused portion of the deceased spouse’s estate tax exemption. This is commonly referred to as “portability.”
When the first spouse who passes away does not utilize any of the exemption because the surviving spouse received the amount under the marital deduction, the surviving spouse is able to use both exemptions totaling almost $11 million. To take advantage of portability, both federal and state tax returns must be filed when the first spouse dies.
The Hawaii tax estate tax situation is not so bad. We also included a pdf download of the Hawaii M-6 estate tax return.
Next on the list is Illinois. The Illinois estate tax threshold is $4 million. This means that when someone passes away and the net assets are less than $4 million, the estate will owe nothing to Illinois. If the estate exceeds $4 million, there is a graduated tax rate applied before money is dispersed to the heirs.
But unlike Hawaii, Illinois does not have a portable exemption (between spouses). As such, when both married people die the exemption will still be $4 million.
But even though the estate exemption in Illinois is $4 million, you can still fall victim to it even if your Illinois assets are less than the exemption amount. For example if you are a non-resident (a person who lives in another state), they can still be taxed in Illinois even if their Illinois assets are less than $4 million. Here’s how it works.
The Illinois estate tax statute can be a little complex. But it essentially states that the amount of Illinois estate tax will be the state tax credit reduced by any amount determined through multiplying the state tax credit to the taxable transfer based on the percentage of the gross estate value of the property not having being located in Illinois to the total gross value of all property.
In essence, this means that the Illinois estate tax liability will be equal to the amount of estate tax that would be liable if all of the assets were located in Illinois multiplied by the percentage of the person’s assets that are physically located in Illinois.
Illinois estate tax is calculated and remitted using Form 700. Take a look at Illinois Form 700 below:
Illinois Form 700 is one of the shorter state estate tax forms. It is only 5 pages long.
Now let’s take a look at how the estate tax works in Maine. The exemption amount is 5.87 million. So any amount less than this is not subject to the estate tax. Here are the tax brackets:
- The first tax bracket is 8% on any amount between $5.87 million and $8.8 million.
- Next is 10% on amounts between $8.8 million and $11.8 million.
- For any amount that exceeds $11.8 million, the tax is a fixed 12%.
Here are the Maine tax brackets:
Non-residents are sometimes surprised to hear that they can be subject to the Maine estate tax for any real estate or tangible personal property that is located in Maine. A nonresident decedent must file a pro forma form 706 with the IRS showing all property of the decedent that is subject to the federal estate tax.
The main estate tax is then derived based on if all the assets on the form 706 were taxed by Maine, subject to the $5.87 million exemption amount.
Then the percentage of nonresident taxable estate is multiplied by the main estate tax to determine the actual estate tax due on the non-residence return.
The Maine estate tax return is only 3 pages. Take a look at the above form.
Maryland’s a state tax functions very similar to how these federal estate tax functions. The tax looks to all assets of the decedent. The exemption is currently $5 million and it is not indexed for inflation.
Maryland estate tax brackets are graduated. They start at 8% and goes up to 16%, depending on the size of the estate.
In addition, the state does not track any gifts made under its state law and therefore will not include lifetime gifts for estate tax purposes. This is different than federal law and how it treats gift and estate taxes.
However, Maryland does have one important feature to its estate tax. It does allow portability between spouses.
When the first spouse passes away, the second spouse must timely file a Maryland estate tax return to claim the unused portion of the $5 million estate tax exemption.
As a result, a couple may be able to shield up to $10 million from Maryland estate tax. Not such a bad deal.
Take a look at the Met 1 (Maryland estate tax form) below:
Massachusetts has one of the lowest exemption amounts and it also has many different tax rates that add to the confusion.
The Massachusetts exemption amount is $1 million in tax rates start at .8% and go all the way up to 16%.
Surprisingly, the first tax bracket starts at $40,000 which makes it look like once a state exceeds $1 million, it is taxed back to the first $40,000. This can be very confusing to tax and legal professionals in addition to taxpayers themselves.
Take a look at the form below:
Just like many other states with a state tax, non-residents who own real estate or have other tangible assets, like a plane or boat, that are located in Massachusetts might find themselves required to file a Massachusetts estate tax return. As such, if if you owned assets in Massachusetts and your estate is greater than $1 million you may have to file.
Minnesota residents who passed away and leave more than $3 million will generally be subject to the Minnesota estate tax. Like other states, it can still be applicable to non-residence. The estate tax rate starts at 13% and goes up to 16%.
Minnesota tax rates have come down over time. Take a look at the chart below:
We have attached a download below for the Minnesota estate tax return:
New York has another one of those complex estate tax structures. Like most states, the estate tax rate is graduated. It begins at 3.06% and goes all the way up to 16%.
The taxable estate is determined as the estate value exceeding the $6.11 million exemption. The exception is if the estate reaches the “cliff” of 105% of $5.25 million. At that point, the entire estate is taxable.
Here’s how the actual calculation works. First, start with calculating your taxable estate. If the estate is valued at less than $6,415,500 million, the taxable estate is then the total amount less the $6.11 million exemption amount. If the estate is valued at less than $5.35 million, the taxable liability is $100,000.
Take a look at the New York estate tax form below:
Oregon is another state with a rather low estate tax threshold. It is $1 million. So the first million dollars is not taxed but anything above that is subject to Oregon’s graduated and progressive tax rate structure.
Oregon estate tax rates start at 10% and go up to a maximum of 16%. Take a look at the specific tax rates and brackets below:
Here is the download link to the Oregon estate tax form:
Next up is Rhode Island. Rhode Island has a top estate tax of 16%. It is applied to estates valued more than $1,648,611. If you live in Rhode Island you might want to consider some estate planning because of the low exemption amount.
Here is a lownload link to the form:
Even when a Rhode Island estate tax return is required, the estate will not necessarily owe any tax. The estate can take certain deductions that will reduce the estate value below the exemption amount. These estate deductions might include:
- Charitable deductions. Any gifts made to qualified charitable, public, or religious organizations are allowed to be deducted.
- Marital deductions. Unlimited property that is left to a surviving spouse can be deducted from the estate.
- Debts, liabilities and administrative expenses. Any debts or liabilities owed along with administration expenses (CPA fees, funeral costs, attorney’s fees, appraisals, etc) can be subtracted from the gross estate.
Moving on to Vermont. The state currently has an estate tax exclusion amount of $5 million. Vermont law currently has a tax rate of 16% on the value of any estate assets that exceed the exemption amount. Unlike many other states, Vermont does not have a graduated tax rate. It is a flat tax subject to any amounts that exceed the exemption.
This makes the calculation rather simple. However you still have to determine valuation of assets and that can be challenging for real estate and business interests.
Thankfully, Vermont has pushed the exemption rates up a bit over the last several years. Back in 2019, it used to be $2,750,000. So at least the exemption amount is trying to keep pace with inflation and higher real estate prices that we’ve seen in recent years. Take a look at the chart below:
The Vermont estate tax return is rather straightforward. Take a look at it below:
Washington has an estate tax exclusion amount of $2.193 million. The tax rates are graduated, starting at 10% and going all the way up to 20%.
The estate executor must file an estate tax return when the gross estate meets or exceeds the filing threshold based on the date of death.
When the gross estate is less than the filing threshold, no estate tax return is required. When the gross estate exceeds the exemption, an estate tax return should be filed even when there is no estate tax liability.
If a Washington estate tax return is filed and a Federal estate return is filed, a copy of IRS Form 706 must be submitted with the Washington filing. Take a look at the table below:
Included below is the estate tax return for Washington:
And last but not least we have Washington DC. Many people don’t realize that Washington DC has an estate tax. But even though they are not a state, they are allowed to assess their own tax just like any state.
Recent legislation was signed by the mayor of DC. This act reduces the estate exemption to $4 million per person beginning in 2021. The lower exemption applies to persons dying on or after January 1, 2021. Beginning in 2022, the new exemption is set to increase annually based on inflation (cost of living).
D.C. will impose estate tax on decedents with assets exceeding the exemption with progressive tax rates as high as 16%. Take a look at the estate tax return below:
How to File a State Estate Tax Return
Steps to Filing an estate tax return
- Review the state specific form
Each state has a specific form that must be filed. We have included the forms in this post so you can have a quick reference guide. This is a starting point to becoming familiar with schedules, attachments and the general language relevant in each state.
- Obtain valid asset appraisals
Properly valuing the assets at date of death is one of the most important steps in the process. But it is also one of the most difficult. Make sure to hire qualified appraisers to help along the way.
- Engage a qualified CPA
Did I mention that most CPAs are not familiar with these forms? Well if they are challenging for CPAs they will be challenging for the average taxpayer. Make sure you hire a professional.