Are There Any State-Specific Estate Taxes in Addition to the Federal Tax?
Introduction
When planning your estate, understanding the potential tax implications is crucial to preserving your wealth for future generations. While many are familiar with the federal estate tax, it’s important to recognize that some states also impose their own estate or inheritance taxes. At DK Law Group, we help clients navigate the complexities of both federal and state-specific estate taxes to ensure their assets are protected and their estate plans are optimized.
Federal Estate Tax Overview
Exemption Threshold: As of 2024, the federal estate tax applies to estates valued above $12 .92 million for individuals and $25.84 million for married couples. Estates valued below these thresholds are exempt from federal estate taxes. However, for estates that exceed these amounts, the tax rate can be as high as 40%.
Portability: The unused portion of a deceased spouse’s estate tax exemption can be transferred to the surviving spouse, allowing for more effective tax planning and potential tax savings.
State-Specific Estate Taxes
While the federal estate tax garners much attention, several states also impose their own estate taxes, which can significantly impact the value of your estate if not properly planned for. States with Estate Taxes
Maryland: Maryland is one of the few states that imposes both an estate tax and an inheritance tax. The Maryland estate tax exemption is currently set at $5 million, which is lower than the federal threshold. Estates valued above this amount may be subject to a state estate tax rate ranging from 0.8% to 16%.
Washington: Washington state imposes an estate tax with an exemption limit of $2.193 million. The tax rate varies from 10% to 20%, depending on the size of the estate.
New York: New York’s estate tax exemption is currently $6.58 million, and the state’s tax rate ranges from 3.06% to 16%.
States with Inheritance Taxes
Inheritance taxes are levied on the beneficiaries who receive assets from an estate, and the tax rate can depend on the beneficiary’s relationship to the deceased.
Iowa: Iowa’s inheritance tax applies to beneficiaries who are not lineal descendants (children, grandchildren, etc.) or spouses. Rates range from 5% to 15%.
Kentucky: Kentucky also has an inheritance tax with rates ranging from 4% to 16%, depending on the beneficiary’s relationship to the decedent.
Maryland: In addition to the estate tax, Maryland’s inheritance tax rate is 10%, applied to most heirs except for close relatives like spouses, parents, and children.
Planning Strategies to Mitigate Estate and Inheritance Taxes
Gifting During Lifetime: One effective way to reduce the taxable value of your estate is by making gifts during your lifetime. The annual gift tax exclusion allows you to give up to $17,000 per recipient in 2024 without triggering federal gift taxes.
Creating Trusts: Irrevocable trusts, such as a bypass trust or a charitable remainder trust, can help remove assets from your estate and potentially reduce the taxable value of your estate at death.
Leveraging Portability: Married couples can use portability to maximize their federal estate tax exemption by transferring the unused portion of a deceased spouse’s exemption to the surviving spouse.
State-Specific Planning: It’s important to incorporate strategies that specifically address state estate or inheritance taxes, such as establishing residency in a state with no estate tax or using state-specific trusts and exemptions.
Conclusion
Estate planning is a complex process that requires careful consideration of both federal and state-specific taxes. At DK Law Group, we offer expert guidance to help you minimize estate taxes and preserve your wealth for future generations. Whether you are concerned about federal estate taxes or the specific estate or inheritance taxes in your state, we are here to help you navigate these challenges and develop a comprehensive plan tailored to your needs. Contact us today to schedule a consultation and secure your estate’s future.
At DK Law Group, we specialize in navigating the intricate landscape of estate planning, estate taxes, and inheritance laws. We’re just a call or email away! Contact us at (443) 739-6724 or reach out via email at diana@dklawmd.com – we look forward to speaking with you.