Who Pays State Death Taxes?

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.