Real Simple’s recent article entitled “Here's Which States Collect Zero Estate or Inheritance Taxes” explains that inheritance taxes are levies paid by the living beneficiary who gets the inheritance. And both federal and state governments can apply estate taxes, which are levied against the assets that are bequeathed.
Just five states apply an inheritance tax: New Jersey, Nebraska, Iowa, Kentucky and Pennsylvania. There are 12 states that have an estate tax: Washington, Oregon, Minnesota, Illinois, New York, Maine, Vermont, Rhode Island, Massachusetts, Connecticut, Hawaii and the District of Columbia. Maryland collects both. As a result, there are 32 states that don’t collect death-related taxes: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming.
To better estimate and project the possible outcomes, you should consider an intergenerational planning meeting. There are some families that like the advantages of establishing a trust. This can minimize fighting and avoid probate. Trusts can be taxed differently than individuals. There’s more certainty about who will bear the costs.
There are families that gift assets, while an elderly or chronically ill person is still alive. These gifts can be subject to taxation, but there are exceptions for tuition and medical expenses. Gifts to children may also be excluded.
There’s no one-size-fits-all approach to transferring valuable or sentimental assets. You can list the most important people and causes in your life. If that list has people in other states, it will be even more important to prepare everyone for their role and responsibilities with the help of an experienced estate planning attorney.
For more information visit my Wichita Estate Planning Attorney website.
Reference: Real Simple (Nov. 24, 2021) “Here's Which States Collect Zero Estate or Inheritance Taxes”