Do you remember the saying, “Nothing is guaranteed but death and taxes”? When it comes to estate planning, many people may think they don’t have enough money to worry about estate planning or how to best leave behind an inheritance for their loved ones. What many don’t consider is the tax implications of those inheritances. This can be particularly important in states with high estate taxes—like Hawaii and Washington—where the top rate of taxation on estates is 20%. While not every state has an Inheritance or Estate tax, around 16 states do. And in some states taxation begins on every dollar above $1,000,000. Life insurance can help you smartly plan for this expense.
Inheritance Tax Rates Across the US
As previously mentioned, Hawaii and Washington have the highest estate tax top rates in the country at 20 percent. Eight states and the District of Columbia are next with a top rate of 16 percent, while six more states have a top rate of 15 percent. On the opposite end of the spectrum, 18 states currently have no estate tax at all. This means that when you die, your heirs will receive whatever you left them without any kind of additional tax burden. Take a look at the chart below created by taxfoundation.org:
Exemption Levels Vary Widely
It’s not just tax rates that vary from state to state; exemption levels also differ greatly. Massachusetts and Oregon currently have the lowest exemption levels at $1 million, meaning anything over that amount would be subject to taxation. Meanwhile, Connecticut has the highest exemption level at $9.1 million—that’s nine times what Massachusetts offers! Clearly, location matters when it comes to estate planning and taxation.
Estate taxes can make or break inheritance for your family members after you pass away, which is why it’s important to consider carefully where you live if you plan on leaving behind a sizeable estate one day. If you think your estate might be subject to taxation upon your death, research local laws and regulations so that you can plan ahead accordingly — this way you won’t leave behind any unwelcome surprises for your heirs!