Estate Taxes in Different States

We're going to talk about estate taxes right now. Most of you know about the federal estate tax, okay? This is the idea that as a country, we've decided we don't want to have, you know, barons and dukes and princes that have, you know, inherited money for, you know, generation after generation after generation after generation. And so we basically tax wealth. When you die, if you're a certain amount of wealthy, you'll lose about 40% of your wealth with each generation. When the next generation dies, 40% will be gone. And the idea is to keep the wealth from all accumulating in the hands of just a few people. That's the idea behind an estate tax. Now, the gift tax is technically part of that estate tax system. Anytime you're giving away more than $18,000 a year, that counts toward your estate tax exemption. Now, this exemption or exclusion, sometimes it's called, is going to be $19,000 a year. Now that we're in 2025, there's $18,000 a year. Last year, the total estate tax exemption, this lifetime exemption, also went up in 2025. It's actually scheduled to be cut in half at the end of 2025. But given Republicans control the House, Republicans control the Senate, and Republicans control the White House, I expect this is probably going to be extended substantially. But that exemption for 2025 is $13.99 million, $14 million, basically, if you're single, double it if you're married. And it's portable now, right, so your spouse can use whatever you didn't use. So $28 million for most married people, Right? That's if you die in 2025, that's how much is exempt from this estate tax, which gets to 40% pretty darn rapidly. I think that the first million dollars may be taxed at less than 40%, but after a million dollars above and beyond this 28 million, it's getting taxed at 40%. But the good news is most of you out there are not gonna die with more than 28 million, at least in today's money. So if this law remains the same and it continues to be indexed to inflation over the years, you're probably not paying any federal estate tax if you're like most white coat investors. Now, if you had some really successful entrepreneurship venture, or you're just really and high income and saved a lot of your money and invested it well, maybe you can get there, but most people just aren't going to get there. And there's lots of things you can do to make sure you don't get there. You know, you can use some trust and you can give money away to charity and you can give money away earlier in your life and those sorts of things. But it's relatively easy to deal with because that estate tax exemption is so high. But a lot of people don't realize, though, is that there's a bunch of states that also have an estate tax, and their exemptions are not always as high as the federal estate tax. All right, so let's talk about what states have this. Well, Washington has one. Oregon, Minnesota, Iowa, Nebraska, Illinois, Kentucky, Pennsylvania, New Jersey, New York, Vermont, Massachusetts, Connecticut and Maine. I think I've got them all. Now, a few of those states, four of those states don't actually have an estate tax. They have an inheritance tax, which works a little bit differently. It's applied to the heir, not to the estate. And often the exemption is very low on that. And so the tax rates are different in each of these states. The exemption amount is different in these states. And a few of them have this variant called an inheritance tax. And interestingly. Oh, I don't know if I mentioned Maryland. Maryland's got both. Right. Not only does it have an estate tax, it's got an inheritance tax. So maybe not the place to be living when you die. Oh, Hawaii as well. I forgot to mention Hawaii. Hawaii has one. Okay, so what are the exemption amounts? Well, let's go through these. Connecticut, it's 13 million. Okay. That's just about what the federal one is. That's not too bad. Hawaii, it's 5.5 million. Right. That's a lot lower than the federal one. Illinois, it's 4 million. Maine, it's 6.8 million. Maryland's 5 million. Massachusetts, only 2 million. Right. Lots of people are going to be paying estate tax in Massachusetts. Minnesota is 3 million. New York, it's 6.9 million. Oregon, 1 million. Right. That's a real amount and it's not insignificant. It's 10 to 16% of your estate that's going to go to Oregon above a million dollars. So if you live in Oregon, maybe move somewhere else before you die. Just kidding. But it's probably worth doing some estate tax planning. Rhode Island, $1,800,000. Vermont, $5,000,000. Washington, a little over 2 million. District of Columbia, 4.7 million. Okay, so lots of those are quite a bit lower than the federal estate tax exemption. Now, when we talk about the inheritance tax, you know, in Kentucky, it's pretty low. Right. It's $1,000. That's it. Above that, you owe inheritance tax zero to 16%. In Nebraska it's 100,000. New Jersey is 25,000. And who did I forget? Maryland? I don't know. There is an exemption there. 0 to 10% in Maryland. So learn your state's estate tax and inheritance tax rules. Most states don't have this, but some do. If you're in one of those states I listed and they're generally, you know, what we call blue states. You know, mostly in the northeast. Minnesota, Illinois, Washington, Oregon. Not California though. And nothing basically in the southern half of the country. So keep that in mind. It's worth knowing about. If you're in one of those states, you need to do a little bit more estate planning than you might if you're not in one of those states.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.