The federal estate tax exemption amount is inflation-adjusted by the IRS each year. Heirs won’t pay the federal estate tax unless the value of your estate exceeds the exemption amount. For people who pass away in 2024, the exemption amount will be $13.61 million (up from the $12.92 million in 20203). Each spouse can take advantage of the exemption, which means the combined exemption for married couples is $27.22 million for 2024.
If the value of your estate falls below the 2024 federal estate tax exemption amount, your estate may not be subject to the federal estate tax. However, state taxes are another story. It’s important to note that many states have an estate tax exemption well below the federal exemption. Currently, 12 states and the District of Columbia have an independent estate tax, and six states have an inheritance tax. You may overlook planning if you will not face federal estate tax exposure, but you should not underestimate the potential estate or inheritance tax exposure in States where you live or own real property.
As fiscally challenged States look for ways to balance budgets, they may move to create, reinstate or increase existing estate and inheritance taxes.
The following are the 2023 estate tax exemptions of the 12 states and the District of Columbia:
Connecticut – $12,920,000
District of Columbia – $4,528,800
Hawaii – $5,490,000
Illinois – $4,000,000
Maine – $6,410,000
Maryland – $5,000,000
Massachusetts – $1,000,000
Minnesota – $3,000,000
New York – $6,580,000
Oregon – $1,000,000
Rhode Island – $1,733,264
Vermont – $5,000,000
Washington – $2,193,000
The following states charge some form of inheritance tax:
Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania
An estate tax is levied on the estate of the deceased, while an inheritance tax is paid by heirs who are subject to the tax (spouses who are US Citizens are usually exempt).
Life Insurance* owned outside a taxable estate can potentially be an effective method of providing the funds for estate tax liabilities, without further inflating the value of the taxable estate for either federal or state tax purposes.
Please consult with a qualified tax professional for your estate tax matters.
*The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.