The Worst Places to Die… Estate Tax-Wise

Some states have their own estate taxes, which start for estates valued at only $1.5 million or less. Homes and retirement accounts are counted when your estate is valued for tax purposes, as well as the proceeds from your life insurance, depending on how the policy is owned and who will receive the money.

Kiplinger’s article, “States with the Scariest Death Taxes,” says that 14 states and DC impose an estate tax, and six states impose an inheritance tax. That can force some heirs to give up a portion of their inheritance. But many states are increasing their estate-tax exemptions to keep rich retirees from moving to another more tax-friendly state.

New Jersey will increase its estate tax exemption to $2 million in 2017, so it has been dethroned as the worst state for your estate. Here’s the new list.

10. New York. The Empire State is upping its estate-tax exemption to the point where on January 1, 2019, it’ll match the federal threshold. But watch out: New York’s estate tax has a nasty catch. If your estate exceeds the threshold by 105%, the entire estate is taxed.
11. Vermont. The state’s estate tax, coupled with its steep income-tax rates, makes it a rather terrifying spot for wealthy people. Vermont is also number one for the least tax-friendly states for retirees.
12. Maryland. This state is beginning to be a more tax-friendly place to die, with its estate-tax exemption rising every year until 2019, when it’ll match the federal exemption.
13. Washington. While the Evergreen State's estate tax rates are unusually high, it does provide an additional $2.5 million deduction for family-owned businesses valued at less than $6 million. The estate tax exemption is indexed to inflation.
14. Connecticut. This is the only state with a state gift tax on assets you give away while you’re alive, and you have to file a state gift tax return every year to identify any such gifts. However, taxes are due only when the aggregate value of gifts made to any individual since 2005 is over $2 million.
15. New Jersey. The state's estate-tax threshold will rise to $2 million on January 1, and the tax will go away permanently in 2018. However, New Jersey will continue to impose an inheritance tax. Parents, grandparents, descendants, children and their descendants, spouses, civil union partners, domestic partners and charities are exempt from the state's inheritance tax. There’s also a $25,000 per-person exemption for siblings, sons-in-law, and daughters-in-law. However, other heirs are taxed on inheritances valued at $500 or more. They also have "looks back" to gifts made to non-exempt individuals within three years prior to death. These gifts are also subject to the inheritance tax, unless the beneficiaries can prove that the gifts weren't made "in contemplation of death."
16. Rhode Island. They adjust their estate-tax threshold here annually for inflation, but with low inflation, the exemption remained unchanged in 2016 and probably won't change much in 2017.
17. Minnesota. Not only does the Gopher State have a low exemption level for estates, but when calculating the value of your estate, they look back to include taxable gifts made within three years before death.
18. Massachusetts. One of just two states with its exemption at $1 million. Massachusetts is less-friendly to estates than most other states.
19. Oregon. The Beaver State takes the prize as the most frightening place in the U.S. to die, if you're concerned about your estate. Oregon’s estate tax still kicks in for estates valued at as little as $1 million, and it also imposes a 10% tax rate on even the smallest of qualifying estates.

Reference: Kiplinger’s (October 2016) “States with the Scariest Death Taxes”