The three major categories of state death taxes include
estate taxes, inheritance taxes, and pick-up taxes. For states having an estate tax regime, the
state will impose a tax on all real estate and personal property owned by its
deceased residents. Once the gross
estate is determined and allowable deductions are applied, the net estate may
be subject to one tax rate. In some
states the rate may vary depending on to whom the estate is distributed. For example, a lower tax rate may apply to
property left to a child, and a higher rate may apply to property passing to
brothers and sisters or cousins.
States having an inheritance tax regime will collect the
death tax from the person who inherits the property, rather than from the
estate of the deceased. Similar to
estate taxes, the tax rates and amount transferring without tax, known as
exemptions, may vary depending on who receives the property. In some states, all property passing to the
deceased’s spouse may pass tax free.
Some rate of tax will generally apply to property passing to any other
beneficiary, including the deceased’s children.
Finally, some states have a pick-up death tax. This means that although these states have no
explicit estate or inheritance taxes, they will pick up additional taxes from
the estate above and beyond what is owed to the federal government. This is a simple method of death tax
assessment that allows these states to avoid establishing complex guidelines
for their own estate tax purposes.
In recent years, a number of states have phased out their
death taxes. Consequently, you should
consult with an experienced estate planning attorney for specific information
about the current death tax laws where you reside.
If you are in need of estate planning advise, Boeglin, Gerardot and Grubbs is available at 260-436-3883 to assist you.