What You Need To Know
Estates are subject to two kinds of taxes: Federal Estate Tax and State Death Tax.
The Federal Estate Tax has a minimum of 18% and a maximum of 55%. There is, however, an exemption from this tax if the value of your estate is below a certain threshold. In 2011, for example, an estate worth less than $5,000,000 would not be subject to estate tax. This exempt amount is increasing annually as follows:
- 2011 - $5,000,000
2012 - $5,120,000
2013 - $5,250,000
The tax act of 2012 made the estate tax exemption permanent at $5,250,000. For years after 2013 the estate tax exemption is indexed for inflation. For married couples, the estate tax exemption applies to each spouse. This means if the combined estate is less than $10,500,000 then the first spouse would pass on his or her entire estate to the surviving spouse. When that spouse passes away, he or she can use his or her own exemption and the exemption of the earlier deceased spouse.
Sixteen states* currently charge a death tax in addition to the Federal Estate Tax. The amount excluded from the state death tax calculations varies from as little as $675,000 in New Jersey to as much as $5,250,000 in Delaware, Hawaii and North Carolina. The remaining states, as of 2013 do not charge any kind of death taxes.
Example: If your estate was worth $6,000,000 in 2012, $880,000 more than the federal exempted amount, your federal tax would be $327,200. If you had lived in New Jersey the state death tax would have applied to $5,325,000 of your estate and the tax would have been $437,000. And the total of the federal and state death taxes would have been $764,200.
*Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Oregon, Rhode Island, Tennessee, Vermont and Washington. The District of Columbia also imposes a death tax.
This information is current as of March 2013 and is subject to change.