Getting Married > Taxes The Battle for Your Cash: Estate versus Inheritance Taxes

Team PV

“Does this mean I get screwed twice? I’m too classy for that.”

That’s not what Uncle Sam said.

With the federal estate tax, your gross estate gets taxed no matter who inherits your assets. While you might be fine on a federal level, your potential tax hit also depends on the state you live in and own property in.

A state inheritance tax hits your heirs during the transfer of assets. The taxes you’ll pay also depends on your relationship to the deceased- spouses, children, siblings, nieces & nephews, and friends can all have different exemptions. A surviving spouse won’t pay any tax (catch: as long as that spouse is a U.S. citizen), children might pay around 10%, and anyone more distantly related is taxed at a higher rate, which varies among states. 

Nineteen states plus Washington D.C. levy estate or inheritance taxes; Maryland and New Jersey take you to the bank and have both. Most states have a lower tax rate than the federal rate. But even if you’re not bringing in Jay-Z amounts of dough, your estate could have baller status and you might not even realize it. Let’s say your home is worth $350,000, you have $100,000 left in an IRA, and the proceeds from your life insurance policy total $250,000. Did you realize that you’re worth at least $700,000? If you live in New Jersey, for instance, the state recognizes your baller status and will tax estates over $675,000- a low threshold compared to other states. Hawaii’s exemption threshold, for example, matches the federal level, so anything under $5.43 million is protected.

Some states have cliffs- in New York, for instance, if your taxable estate blows past the basic exemption by more than 5%, the Empire State takes your entire estate to the bank. Makes that retirement community in Florida look much snazzier, doesn’t it? 


Photo: Modified from kennymatic

Hide Notes Show Notes