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Inheritance Tax: What States Collect & How Much
When you’re planning the perfect retirement, it’s easy to focus on the fun stuff—like a sunnier climate, a nearby golf course, or how many grandkids you can squeeze into holiday photos. But there’s one factor that can make or break your plans: estate and inheritance taxes.
While these taxes might not be the first thing on your radar, knowing the differences and potential pitfalls can help ensure your nest egg goes to the people (and causes) you care about—rather than a big tax bill. Here’s what you need to know to dodge unwelcome surprises.
Estate Tax vs. Inheritance Tax: A Quick Refresher
Estate Tax: Levied on the entire value of your estate before it’s distributed to your heirs. If your estate meets or exceeds a specific threshold, the tax applies—federally, at the state level, or both.
Inheritance Tax: Levied on the recipient of assets. Depending on the state’s rules and your relationship to the heir, the tax rate can vary (or it might not apply at all).
The kicker? Which tax applies—and how much—depends on where you live and where your heirs reside.
The Federal Estate Tax: The 10,000-Foot View Current Federal Threshold
Currently, the federal government imposes an estate tax if your estate’s value is above the exemption level. For 2025, that figure is hovering around$13 million(adjusted yearly for inflation). Only the amount above this threshold is taxed.
Looking Ahead
This relatively high exemption is slated to revert to a lower amount (about half the current level) after 2025 unless new legislation is passed. Translation? Many more estates could be subject to federal estate tax if that happens. This is why periodic check-ups on your estate plan are crucial.
States That Levy an Estate Tax
Only a select group of states (plus the District of Columbia) impose an estate tax:
Connecticut
District of Columbia
Hawaii
Illinois
Maine
Maryland
Massachusetts
Minnesota
New York
Oregon
Rhode Island
Vermont
Washington
Each state sets its exemption thresholds, and some are significantly lower than the federal figure. That means you could owe zero federal estate tax but still owe a sizable bill at the state level if you live in, say, Massachusetts or Oregon, which both have lower thresholds. Rates often range from 10% to 20%, kicking in for estates beyond those state-specific limits.
States That Impose an Inheritance Tax
Inheritance taxes are rarer but can still pack a punch. As of now, these states impose one:
Iowa (phasing out through 2025—rules vary each year)
Kentucky
Maryland (the only state with both estate and inheritance taxes)
Nebraska
New Jersey (estate tax eliminated, but inheritance tax remains)
Pennsylvania
The tax rate usually depends on how you’re related to the deceased. For example, kids often pay a lower rate—or no tax at all—while unrelated or distant relatives may face higher rates.
Why It Matters for Your Retirement Move
Estate and inheritance taxes can dramatically influence your family’s ultimate bottom line. Here’s why it’s worth paying attention:
Safeguarding Your Legacy: If you want to leave as much as possible to loved ones, ignoring state-level taxes can undermine your efforts.
Comprehensive Planning: Even if you move to a state with no income tax (like Florida), make sure you understand its estate tax policies (Florida does not have an estate tax, which is a plus—but always confirm your details with a pro).
Residency Nuances: Moving states isn’t as simple as signing a lease. You have to establish bona fide residency—otherwise, your old state might still try to claim your estate for tax purposes.
How to Shield Yourself (and Your Heirs) from Surprises
Connect with Our Office: As tax and accounting professionals, we can help you identify your current exposure to federal and state taxes, plus strategize ways to reduce that exposure.
Monitor Legislative Changes: Exemptions and rules can shift like the wind. We’ll keep you updated on what’s happening at both the federal and state levels.
Consider Trusts & Other Planning Tools: Tools like trusts, gifting strategies, and certain insurance products can lessen tax burdens if used properly. Let us guide you through which options align with your goals.
Review All Legal Documents: Wills, power of attorney, and healthcare directives may need updates when you cross state lines—especially if you’ve been in your old state a long time.
Your Next Step
Ready to nail down the perfect plan for your golden years? Before you make that big move, schedule time with our office. We’ll walk through your specific situation—estate value, potential heirs, current location, and target retirement spots—to craft a strategy that keeps more of your wealth in your family’s hands.
Because let’s face it: Retirement should be about sunshine, family visits, and checking off that bucket list—not scrambling to figure out why half your estate went to taxes. Let us help you make the most of your hard-earned legacy.
Disclaimer
This information is for general educational purposes and does not constitute legal, tax, or financial advice. For personalized recommendations, please consult our office directly. Laws can vary by state and may change over time.
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Rose Tax & Financial
Cedar Crest, New Mexico 87008
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