Best States to Die In (but it’s not a good year to do it anywhere)

Category: Financial and taxes in retirement

March 15, 2010 and updated February 13, 2016 — Notes: First,this article was prompted by an excellent suggestion from one of our visitors, Gerry. Second, since this article was written the U.S. Congress passed and the President signed a bill that extends the estate tax permanently with a $5 million (indexed to inflation) exemption from each estate .

It’s not the cheeriest topic, but what critics call the “death tax” is on the minds of many people. The Economic Growth and Tax Relief Reconciliation Act of 2001 set up lower estate tax rates and higher exemptions through 2009, and then repealed the estate tax in 2010. After a high anxiety period in which no one really knew what Congress would do about this, a $5 million exemption went into effect, indexed for inflation ($5.450 million is exempt in 2016).


A complex subject
Let’s start by saying that estate and inheritance taxes are a complex subject, one where you should have a competent professional helping you. If your estate is worth less than $5.450 million, at least you don’t have to worry about that problem – your estate will not be taxed by the federal government under current laws. Some definitions – an “estate tax” is levied on the net value of what you are worth when you die, an “inheritance tax” is levied on your heirs from what what they collect from the estate. The estate tax is more common. Your spouse will not pay inheritance taxes from your estate, but your children and other heirs might in some states.

State laws change quickly so it is important, particularly if your estate will be large, to look into your state’s laws carefully. One of the further complications relates back to the federal exemption problem we discussed above. Many states had their estate taxes pegged to the federal law. But faced with the prospect of declining revenues, many have since “decoupled” their laws from the federal, allowing them to ignore the federal exemptions that steadily climbed through 2009. Other states have changed their laws so they can set their estate and inheritance taxes and exemptions independently. According to an article in Forbes about state estate taxes, 15 states and the District of Columbia collect estate taxes in 2016:

Connecticut
Delaware
District of Columbia
Hawaii
Illinois
Maine
Maryland
Massachusetts
Minnesota
New Jersey
New York
Oregon
Rhode Island
Tennessee
Vermont
Washington

Inheritance Taxes
There are currently 6 states that collect inheritance taxes (Maryland and New Jersey levy both estate and inheritance taxes!). Indiana eliminated its inheritance tax for people dying after Dec 31, 2012.

Iowa
Kentucky
Nebraska
Maryland
New Jersey
Pennsylvania

What does all this mean to you?
If your estate will be worth more than the exemption allowed in the state you currently live in, and you are very concerned about these taxes, you might consider moving to one of the states not listed above. A state without an income or inheritance tax will let more of your hard-earned money reach your heirs. However, as one savvy estate attorney advised us, choosing a place to live based on tax policy is a case of the tail wagging the dog. Better to choose the place you want to live in first, then if all things are equal, you could tilt to the low-tax state. Of course, before you make any decisions you should consult a competent estate attorney and/or accountant.

For further reference:
Finding Your Most Tax Friendly Retirement States for Retirement
These States Actually Encourage You to Retire There
Most Tax-Friendly States
What do you think?
Please use the comments section below to give us your input on this subject.



Posted by John Brady on March 15th, 2010

13 Comments »

  1. […] here: » Best States to Die In (but it's not a good year to do it … Share and […]

    by » Best States to Die In (but it's not a good year to do it … | Legal News - Your Source for Legal News and Advice — March 15, 2010

  2. […] For further reference: What are the most popular states for retirement Be Careful about worst states to retire “Best States to Die In” […]

    by » 4 Reasons Why Not to Retire in These 7 States Topretirements — March 15, 2010

  3. Indiana
    Iowa
    Kentucky
    Nebraska
    Maryland
    New Jersey
    Pennsylvania

    Wow these are all beautiful states. And expensive!

    Rust
    #1 senior homes Directory

    by touchmenot — March 21, 2010

  4. […] and 7 states collect on inheritance taxes (on what your heirs receive from your estate). See “Best States to Die in“. – Cost of Living In general the states with the lowest cost of living are in the south and […]

    by » Most Retirement Friendly States Topretirements — May 25, 2010

  5. This is really weird to know how many taxes, and the biggest thing is their type, we pay..if I am born in US or UK or Europe, then it wasn’t my choice anytime..and yet I have to pay for the thing where my choice doesn’t even matter..great…I think next tax will be paid per breath I take..:(

    by Propert Management Software — July 9, 2010

  6. I have researched further and this is really very irritating to know the types of taxes being levied on us…now I think Africa is a better choice to move on, which is very cheap as compared to US, at least in terms of taxes..

    by Property Management Software — July 9, 2010

  7. I personally don’t think Kentucky or Maryland are the two states to die in…who cares if you die in any of these two states….I had been searching for a good property in either of these last year and was really astonished to know that people don’t know much about the poperties or even lettings agents here…

    by John Karl — October 4, 2010

  8. As far as I know – life insurance is NOT part of your estate so cannot be taxed? Can anyone verify that?

    by Flatearth6 — January 27, 2013

  9. […] your estate). Some states, such as New Jersey, have both. See the Topretirements article, “Best States to Die In” for more […]

    by » Finding Your Most Tax-Friendly State for Retirement: Part 1 Topretirements — April 15, 2013

  10. […] For further reading: Finding Your Tax Friendly Place for Retirement: Part 1 Best States to Die in […]

    by » Finding a Tax Friendly State for Retirement: A Checklist Topretirements — April 30, 2013

  11. Recently, Indiana eliminated the state inheritance tax all at once, rather than the original phased elimination by 2022.

    Editor’s note: Thanks very much for this timely update. Very much appreciated – we have also made this change on our Indiana Retirement Guide

    by bamltm1979 — September 11, 2013

  12. LOL! I don’t care which state I die in. Dead is dead! If most people on this retirement site have estates over $5.4 million then I am on the wrong site 😮

    by Bob — February 18, 2016

  13. I live in New Mexico which states we don’t have an Inheritance tax. however, I have read that inherited money is considered as income and that is taxed. can somebody guide me in confirming this? I would so much appreciate getting this information! Thank you

    by Barbara — February 22, 2016

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