We Care

More states increase estate taxes

Although Georgia does not currently have an estate or inheritance tax for 2011, an increasing amount of states impose their own estate or inheritance taxes in addition to the federal estate tax. Many states tax at a rate of 16 percent and exempt $1 million or less per estate from taxation.

Currently, 22 states and the District of Columbia impose an estate and/or inheritance tax. Two states, Maryland and New Jersey, impose both an estate and an inheritance tax. Forbes reports that six states levy only an inheritance tax, the amount of which depends on the relationship of the heir to the deceased.

For example, in Maryland, the estate tax is 16 percent above the $1 million exemption, but Maryland imposes an inheritance tax on every dollar left to those who are not lineal family members. Therefore, an inheritance left to a brother is not subject to the inheritance tax, but the inheritance tax applies to an inheritance left to a niece, nephew, or friend.

The number of states that impose estate and inheritance taxes constantly fluctuates. One reason for the continual changes is that state lawmakers are ambivalent about imposing inheritance taxes. States want estate tax revenue but also worry about incentivizing wealthy seniors to move to lower-tax or no-tax states.

In addition, many state estate tax laws follow federal law. Because Congress allowed the estate tax to lapse in 2010, states that set their tax rate in comparison to the federal rate had to make changes. Congress finally reinstated the tax in December and raised the $2 million exemption applicable in 2009 to a generous $5 million level.

Resource: Forbes, “More States Want To Tax Your Estate,” Ashlea Ebeling, 2/15/11