These Are the Best States to Die in
NEW YORK ( MainStreet) When it comes to death taxes, some states are better places to die than others, including 31 states that have no estate or inheritance taxes.
"Inheritance and estate taxes were first enacted to help redistribute wealth and to make sure that large amounts of wealth were broken up," said Julieanne Steinbacher, a certified elder law attorney in Williamsport, Penn.
An estate tax is imposed on the net value of the property owned by someone at death, and the inheritance tax is calculated based on the person who receives the property at death.
"While you may shy away from retiring in a state with estate or inheritance taxes, it's wise to consider the overall tax consequences of living in a particular state," said Wendy Witt, an estate planning attorney in Pittsburgh.
The 2014 federal estate tax exemption of $5.34 million is the same across the nation but estate taxation and exemptions vary from state to state.
A person passing away in Pennsylvania would pay $45,000 to the state compared to Florida where no tax would be collected upon death.
"While smart estate planning can minimize or eliminate federal estate taxes even in the largest estates, there isn't much you can do to reduce state inheritances taxes other than move to a different state or give all your money away during your lifetime and neither may be in your best interest," Witt told MainStreet.
As for state estate tax rates among states that assess such a fee, Connecticut and Maine are the best at 12%. Washington state is the highest at 19% followed by 16% in D.C.
Washington state redeems itself with no income or inheritance tax, but Florida still trumps with no income tax, no estate tax and no inheritance tax. Nevada is another popular state to retire in, because there of no income tax, no corporate income tax, no estate tax and no inheritance tax.
"Many states have abolished these taxes over the years because they are often viewed as an unfair tax or double taxation," Steinbacher told MainStreet. "Other states have held onto them because of the revenue that they generate."
In Maryland, the inheritance tax exemption is $150, and the maximum tax rate is 10% in addition to the 16% maximum estate tax rate compared to New Jersey where the inheritance tax exemption is zero and the maximum tax rate is 16% in addition to the 16% maximum estate tax rate.
"Both state level estate and inheritance taxes can take a huge bite out of your hard earned money on which you've already paid income taxes," Witt said.
If you're looking to leave more money to your heirs, consider relocating to one of the states that have neither estate or inheritance taxes, which include Texas, South Dakota and North Dakota. But if moving isn't in the cards for you, there are investment products that can reduce the grim reaper's cut.