According to the old saying, death and taxes are inextricable. What about death taxes? These taxes can be avoided. All taxes are part of American life, from sales tax to gasoline tax and FICA tax. Income taxes, property taxes and sin taxes are all part of American life. According to Debt.org, Americans pay an average 29.2 percent in taxes each year.

Your heirs could end up being taxed once again, even though you already give the government 29 cents for every dollar earned during your lifetime.

Depending on where you live, your heirs and estate could be hit with a death tax bill. This could be either an inheritance tax or an estate tax. You can also be hit with a death penalty if assets are received from the will of a friend or family member.

What are Inheritance and Estate Taxes?

Wealth transfer after death is affected by inheritance and estate taxes. They are basically the same thing. The only difference is who pays them.

According to Investopedia an inheritance tax is imposed upon anyone who receives assets from an estate of a deceased individual. An estate tax, however, is levied on assets before they are distributed.

These taxes are known for being the last resort of the taxman's knife. They are imposed on your assets and heirs upon your death.

A number of states have passed laws governing inheritance and estate taxes, also known as "death taxes", in many parts of the country. There is no estate tax at the federal level. However, 99.9% of us won't find this an issue.

Federal estate taxes exempt the first $11.7million in assets for an individual, and $23.4million for married couples. The federal estate tax doesn't kick into effect until after these levels. It can be as high as 40%. The federal estate tax was created to stop tax-free wealth being perpetuated among America's most wealthy families.

Instead of dealing with the IRS, the inheritance and estate taxes that non-multimillionaires encounter are at the state level. Every state has its own rules. Each beneficiary may have to pay a different tax bill depending on how large the inheritance is.

This is because inheritance taxes rates are also affected by the beneficiary's relationship with the deceased and not just their state. There are some types of relationships that are exempt from inheritance tax in each state.

These States don't collect death taxes

32 states do not have any death-related taxes. These states do not impose any inheritance or estate taxes on wealth transfers if you live with your beneficiaries. These include:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.

If you are a resident of one of these states, and inherit a property, business or bank account in a death-taxed area, you might be subject to an inheritance or estate tax.

The State Details

16 states and Washington, D.C. currently have inheritance or estate taxes. Five states have inheritance taxes: New Jersey, Nebraska and Iowa, Kentucky, as well as Pennsylvania. However, that number will drop to four in 2025 as Iowa eliminates its inheritance tax.

Washington, Oregon and Minnesota are just 12 states that have an estate tax. Maryland is the only state with both an inheritance and estate tax.

Massachusetts and Oregon have the lowest estate tax thresholds. They tax all estates over $1 million.

Washington has the highest estate tax rate at 20 percent. It's only applicable to estates with a value exceeding $11,193,000

Organization Is Key

Organization is crucial when you know you'll be inheriting a fortune. Wealth transfers can be an enormous blessing. However, if not planned properly, wealth transfers can leave a large tax burden.

It is a smart decision to hold an intergenerational family meeting, with an estate planner or legal advisor, when everyone is well and feeling good. They will be able to explain to everyone the implications of wealth transfer in each asset state. This will allow you and your family to plan accordingly.

It is not wise to try and discuss financial matters when you are in mourning. This topic is best handled with professional consultation and planning.

Plan for Death Taxes

It is a smart idea to include a strategy for death taxes in your plan for retirement and wealth building. You and your family can avoid probate court by establishing a trust or donating to charity. Gifting assets can also help minimize disputes.

Planning for retirement and wealth transfer is not a one-size fits all approach. It is a smart financial decision to create a plan that will ensure your assets go to the people and causes you care about, rather than the taxman. This is especially important if you or your beneficiaries are in a death tax state.

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By: Perry Carpenter
Title: Are You Ready For ‘Death Taxes?’ Check Out Which States Don’t Collect Estate Or Inheritance Tax
Sourced From: www.suggest.com/what-states-dont-collect-estate-inheritance-tax/2612251/
Published Date: Wed, 12 Jan 2022 23:45:00 +0000

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