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The handful of states that still impose them should consider eliminating them or at least conforming to federal exemption levels.

They also yield estate planning and tax avoidance strategies that are inefficient, not only for affected taxpayers, but for the economy at large. They disincentivize business investment and can drive high-net-worth individuals out-of-state. In the Tax Cuts and Jobs Act of 2017, the federal government raised the estate tax exclusion from $5.49 million to $11.2 million per person, though this provision expires December 31, 2025.Įstate and inheritance taxes are burdensome. The District of Columbia moved in the opposite direction, lowering its estate tax exemption from $5.8 million to $4 million in 2021, but simultaneously dropping its bottom rate from 12 to 11.2 percent. Vermont also continued phasing in an estate exemption increase, raising the exemption to $5 million on January 1, compared to $4.5 million in 2020. Connecticut’s estate tax will have a flat rate of 12 percent by 2023. In 2020, rates started at 10 percent, while the lowest rate in 2021 is 10.8 percent. However, as the exemption increases, the minimum tax rate also increases. New Jersey finished phasing out its estate tax at the same time, and now only imposes an inheritance tax.Ĭonnecticut continues to phase in an increase to its estate exemption, planning to match the federal exemption by 2023. Delaware repealed its estate tax at the beginning of 2018. Most states have been moving away from estate or inheritance taxes or have raised their exemption levels, as estate taxes without the federal exemption hurt a state’s competitiveness. After the federal government fully phased out the state estate tax credit, some states stopped collecting estate taxes by default, as their provisions were directly linked with the federal credit, while others responded by repealing their tax legislatively. This made estate taxes an attractive option for states. In 1926, the federal government began offering a generous federal credit for state estate taxes, meaning taxpayers were paying the same amount in estate taxes whether or not their state levied the tax. Inheritance taxes are remitted by the recipient of a bequest, and are thus based on the amount distributed to each beneficiary. All six states exempt spouses, and some fully or partially exempt immediate relatives.Įstate taxes are paid by the decedent’s estate before assets are distributed to heirs, and are thus imposed on the overall value of the estate.

Maryland imposes the lowest top rate at 10 percent. Of the six states with inheritance taxes, Nebraska has the highest top rate at 18 percent. Massachusetts and Oregon have the lowest exemption levels at $1 million, and Connecticut has the highest exemption level at $7.1 million. Eight states and the District of Columbia are next with a top rate of 16 percent. Hawaii and Washington State have the highest estate tax top rates in the nation at 20 percent. Maryland is the only state to impose both. Twelve states and the District of Columbia impose estate taxes and six impose inheritance taxes. In addition to the federal estate tax, with a top rate of 40 percent, some states levy an additional estate or inheritance tax.