how state estate taxes work
an estate that escapes federal tax may still be subject to taxation by the state in which the decedent was living at the time of their death however estates valued at less than 1 000 000 are not taxed in any jurisdiction 4connecticut has enacted legislation for its exemption to match the federal exemption beginning in 2023 5 as of 2024 these jurisdictions have estate taxes with the following threshold minimums estate tax and gift taxsince estate taxes are levied on an individual s assets and estate after death they can be avoided if you gift assets before you die however the federal gift tax applies to assets that are given away within certain limits while the taxpayer is living according to the irs the gift tax applies whether the donor meant the transfer as a gift or not 7the irs offers generous gift exclusions for 2024 the annual exclusion is 18 000 meaning tax filers can gift up to 18 000 to each person they wish without paying tax on any of those gifts for the 2023 tax year the annual exclusion was 17 000 8these provisions make gifting an effective way to avoid tax on assets transferred to people besides your spouse who might be subject to the estate tax if the assets were transferred as part of an estate if your gifts exceed the gift exclusion limit they aren t subject to tax immediately and may never be taxed unless your estate is substantial the amount above the gift limit is noted and added to the taxable value of your estate when calculating estate tax after you die 9if making a gift of 79 000 in 2024 with an exclusion of 18 000 the remaining 61 000 will need to be reported on a 709 gift tax return that 61 000 will reduce your lifetime exclusion to 13 million and also your estate tax exclusion to 13 million 819the estate tax is sometimes referred to pejoratively as a death tax since it is levied on the assets of a deceased individual estate tax and inheritance taxan estate tax is applied to an estate before the assets are given to beneficiaries in contrast an inheritance tax applies to assets after they have been inherited and are paid by the inheritor 10there is no federal inheritance tax however select states including iowa kentucky maryland nebraska new jersey and pennsylvania levy inheritance taxes maryland has both an estate and an inheritance tax 11the inheritance tax is assessed by the state in which the beneficiary is living whether your inheritance will be taxed and at what rate depends on its value your relationship to the decedent and the prevailing rules and rates where you live 12as with estate tax an inheritance tax if due is applied only to the sum that exceeds the exemption above those thresholds the tax is usually assessed on a sliding basis rates typically begin in the single digits and rise to between 15 and 20 as of 2024 the exemption you receive and the rate you re charged may vary by your relationship with the deceased life insurance payable to a named beneficiary is not typically subject to an inheritance tax although life insurance payable to the deceased person or their estate is usually subject to an estate tax 1314as a rule the closer your relationship to the decedent the lower the rate you ll pay surviving spouses are exempt from inheritance tax in all six states domestic partners too are exempt in new jersey 1115 nebraska and pennsylvania exempt descendants aged 21 and younger 1617here are the jurisdictions that have inheritance taxes and their threshold minimums for 2024 iowa will abolish its inheritance taxation in 2025 18because the rates for estate tax can be quite high careful estate planning is advisable for individuals who have estates worth millions of dollars that they want to leave to heirs or other beneficiaries 