Estate and Inheritance Taxes

Many people worry about "death taxes"—the informal term for taxes that the federal or state governments might impose on the transfer of your property when you die. Currently, only the very rich will owe federal estate taxes, so unless your estate (the sum of the property you leave behind when you die) is larger than $13.99 million, your estate won't need to pay the federal estate tax. (This threshold amount is subject to change with the political climate, though, and has changed rather dramatically over recent years.)

Some state governments, however, also impose a state estate tax or inheritance tax, which might apply even if your estate does not owe the federal estate tax. About a dozen states, including New York and Illinois, still have a state estate tax. The threshold amount that triggers a state estate tax varies by state, but it's typically lower than the federal threshold; in other words, you might owe state estate tax even if you don't owe federal estate tax. The lowest state threshold is $1 million. Several states have repealed their state estate tax, including Delaware, New Jersey, North Carolina, Ohio, and Tennessee.

Separately, a few states, namely Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, still impose a state inheritance tax. Each state's rules vary, but whether your inheritors will owe inheritance tax usually depends on how much you own at your death and each inheritor's relationship to you. (Your close family members pay lower or no inheritance tax, compared to more distant family members or friends.) Indiana and Iowa have recently repealed their state inheritance tax.