It is hard to believe that as many as nine states have eliminated or lowered estate taxes in the past three years. More states are joining the estate tax revolution.
Minnesota and Maryland are increasing their estate tax exemption, trying to make their states more attractive to wealthy residents. Maryland will increase a $3 million exemption to $4 million in 2018, and Minnesota upped its exemption to $2.1 million, retroactive to January. Not to be left out, New Jersey increased its per person exemption to $2 million this past January.
If that wasn’t enough, according to, Fox Business’s article, “Why More States Are Killing Death Taxes,” the Garden State plans to totally eliminate its estate tax, making New Jersey one of about six others that have ended their estate taxes in the last ten years.
The tax-cutting trend stems from an intense competition between the states for affluent and wealthy taxpayers. Residents owe income taxes every year. However, there are those who are willing to move out-of-state to avoid death taxes. In addition, with the federal estate and gift tax exemption increasing to more than $5 million, states with death taxes really stick out.
There are two holdouts, Massachusetts and Oregon. These two are the only states with estate-tax exemptions of $1 million or lower, compared to nine in 2009. The tax in both states will increase annually because neither adjusts for inflation. Some Massachusetts lawmakers are concerned about losing residents to other states because of its estate tax, a $400 million revenue generator last year. Massachusetts is looking at upping the exemption to half the federal level and maybe excluding the value of a residence.
It’s a different story in Oregon where efforts to raise the exemption have met with resistance in the legislature. The estate-tax revenue of $200 million for the two-year cycle ending June 30 is 50% higher than forecast, which has been helped by strong housing and financial markets. Nevertheless, few people are expected to leave Oregon to avoid its estate tax.
In another six states, it’s the inheritance tax that is creating pressure on the government. An inheritance tax is payable by the person who inherits assets, not the estate of the person who died. Inheritance tax rates and exemptions often vary, according to the heir's relation to the decedent. For instance, in Nebraska, there’s no tax on assets left to a spouse, a top rate of 1% on assets passed to lineal relatives or siblings and a top rate of 18% on assets left to non-relatives.
As for New Jersey and Maryland, here are some further details: while both states have trimmed their estate tax, they have not yet modified their inheritance taxes. At least Maryland has large exemptions to its inheritance taxes. New Jersey’s estate tax actually exempts lineal descendants.
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