April 30, 2018
The federal government taxes transfers of wealth through the estate tax, gift tax, and generation-skipping transfer tax. Estate taxes and generation-skipping transfer taxes are paid on the contents of estates or proceeds of trusts, while transfers of wealth between living persons are subject to gift taxes.
The Tax Cuts and Jobs Act raised the estate tax exclusion from $5.49 million to $11.2 million per person, though this provision expires December 31, 2025.
In addition to the federal estate tax of 40%, some states impose an additional estate or inheritance tax. Twelve states (including New York) and the District of Columbia levy an estate tax while six states (including Pennsylvania and New Jersey) have an inheritance tax. Maryland is the only state to impose both. New Jersey and Delaware eliminated estate taxes beginning in 2018.
According to the
Tax Foundation
, Washington state’s 20% rate is the highest estate tax rate in the nation; eight states and DC are next with a top rate of 16%. Three states match the federal exemption level of $11.2 million.
Of the six states with inheritance taxes, Nebraska has the highest top rate at 18%. Maryland imposes the lowest top rate at 10%. All six states exempt spouses, and some fully or partially exempt immediate relatives.
Pennsylvania taxes lineal heirs at 4.5% on the transfer of assets from the decedent to the beneficiary. The inheritance tax rate climbs to 12% if the assets are transferred to a sibling of the deceased. New Jersey levies inheritance taxes on the transfer of assets to certain beneficiary classes based on their relationship with the deceased. For example, Class A beneficiaries (spouses, civil union or domestic partners, children, stepchildren, grandchildren, parents and grandparents) are exempt from inheritance tax. Class C beneficiaries (siblings, son-in-laws and daughter-in-laws, nieces and nephews) are not. The inheritance tax rate in New Jersey ranges from 11% to 16% based on the value of transferred assets.
Please feel free to call us at 610.828.1900 (PA) or 732.341.3893 (NJ) if you have questions or concerns. You can also contact Mike Mazur, CPA, CFF, managing principal - New Jersey office at
[email protected]
or myself at
[email protected]
. We are always happy to help.
