Thanks to the federal tax bill on President Donald Trump’s desk, the amount you can leave tax-free to heirs will be a whopping $11.2 million in Hawaii, Maine, and Washington, D.C. in 2018—and in Maryland in 2019, and in Connecticut in 2020. That’s because these states have tied their state estate tax levies to the federal levy–whatever it is. And the GOP tax bill doubles the base federal estate tax exemption amount to $10 million, indexed for inflation, for tax years 2018 through 2025.
That news comes on top of the fact that two states are ditching their estate tax levies as of the New Year: New Jersey and Delaware. (See below for the New Jersey inheritance tax trap.)
New York, by contrast, is hardwired to match the current federal exemption amount—a base of $5 million indexed for inflation—in 2019. And Massachusetts and Oregon now tie for the lowest estate tax exemptions at $1 million per person.
The upshot:If you’re rich, it matters where you die if you want to keep the taxman at bay. The higher the estate tax exemption, the fewer taxable estates.
The federal estate tax, 40% on assets above $11.2 million, will hit only 1,800 estates nationwide next year, according to Joint Committee on Taxation estimates. But many more taxpayers pay state estate taxes. The number of state taxable estate tax returns in Oregon alone—where the exemption is just $1 million–was 1,563 in 2015, according to Oregon’s Legislative Revenue Office. How much money you can leave to your heirs free of state death tax levies depends on where you live and own property, to whom you’re leaving your money to, and whether your estate planning is up to date. Top rates are typically 16%, and for inheritance tax states, the tax can apply to the first dollar of assets.
Explore state estate and inheritance taxes in 2018:
Altogether, 17 states and Washington, D.C. will levy an estate tax or inheritance tax (Maryland is the sole state with both levies) in 2018, down one from 2017 because of Delaware dropping out. Eight of the remaining states, plus Washington, D.C. are ushering in changes for 2018.
New Jersey’s estate tax repeal is the biggest news. But it’s bittersweet because a separate state inheritance tax that hits non-lineal heirs like siblings and nieces or nephews remains on the books. The Garden State joins the list of other inheritance-tax-only states: Nebraska, Iowa, Kentucky, and Pennsylvania.
In Hawaii, Maine, and Washington, D.C., where the exemption doubles, the number of taxable estates will plummet. But watch for action by state legislators who might not have expected an $11.2 million exemption. “They’ll rethink it rather quickly,” predicts Portland, Maine estate lawyer Phil Hunt. “I wouldn’t be surprised if they tried to do something retroactively.”
Minnesota and Maryland have scheduled increases to their exemption amounts. Minnesota’s exemption jumps from $2.1 million in 2017 to $2.4 million in 2018 and is set to top out at $3 million in 2020. Maryland’s exemption climbs to $4 million for 2018, from $3 million in 2017. Then, in 2019 it’s scheduled to match the federal exemption.