Death isn’t a pleasant thought, but the reality is that everyone dies, and death taxes can be challenging for family and friends. After saving and planning so you can leave your loved ones with something when you go, the last thing you want is for them to have to hand money over to the government.
Which state you die in (and who you leave behind) can make all the difference when it comes to your loved ones’ financial burdens.
What are death taxes?
Death taxes are the tax liability incurred by your loved ones after you die. Estate and inheritance taxes can result in big bills for your heirs. But unless you are worth millions of dollars, you might avoid death taxes if you don't have assets in certain states.
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With that in mind, the following states are the most expensive states to kick the bucket in when you aren’t a millionaire.
Pennsylvania
Pennsylvania Inheritance tax: 4.5% to 15%
Pennsylvania Estate tax: None
From a death tax perspective, Pennsylvania is an ugly place to die. It is a state with no estate tax, but its costly inheritance tax makes up for it.
Unlike some states with an inheritance tax, if you die in Pennsylvania, your children could wind up with a tax bill. That’s because inheritances are only exempt when your child heir is 21 or younger (or when your heir is a spouse). Surviving children over the age of 21 pay a 4.5% tax rate. And siblings pay even more, with an inheritance tax rate of 12%. Things go from bad to worse when non-relatives inherit assets.
- The inheritance tax in Pennsylvania jumps to 15% for non-relatives.
- If the tax is paid within three months, the state allows a 5% discount, but that means some loved ones still pay 10%.
Maryland
Maryland Inheritance tax: 10% of “clear value” (fair market value minus qualified expenses)
Maryland Estate tax: 16% on the amount that exceeds $5 million
The state has an inheritance tax in addition to an estate tax. While only estates worth $5 million or more need to worry about estate tax in Maryland, some heirs need to pay tax when they inherit as little as $1,001. Domestic partners must pay the inheritance tax unless they inherit the primary residence and they are a joint owner.
So, you might want to think about tying the knot if you live in Maryland. Thankfully, not everyone in Maryland needs to pay the inheritance tax. If you want to save your loved ones the tax bill, consider leaving your assets to exempt heirs.
- Spouses are exempt.
- Children and stepchildren (or the surviving spouses of children) are exempt.
- Parents and grandparents are exempt.
- Siblings are exempt.
New Jersey
New Jersey Inheritance tax: Between 11% and 16%
New Jersey Estate tax: None for deaths after January 1, 2018
New Jersey no longer has an estate tax, but that doesn’t matter for most people. The inheritance tax lives on, and many surviving relatives still have to pay it. Thankfully, New Jersey is a little more lenient when it comes to children and some other relatives.
- Spouses, children, grandchildren, great-grandchildren, parents, grandparents, and civil union partners do not need to pay the inheritance tax in New Jersey.
- Siblings are taxed between 11% and 16% (depending on the amount they inherit).
Nebraska
Nebraska Inheritance tax: Between 1% and 15%
Nebraska Estate tax: None
If you die (or have assets) in Nebraska, your heirs could face a tax bill. Spouses are favored yet again in this state, with no inheritance tax liability. Surviving children get a break but still have to pay some tax. While children only pay 1%, higher values can result in big tax bills. Of course, children aren’t the only ones who need to pay this tax in Nebraska.
- 1% inheritance tax is due on amounts over $100,000 for children, parents, siblings, and grandparents.
- 11% inheritance tax is charged on amounts over $40,000 to aunts, uncles, nieces, and nephews.
- Everyone else (except spouses of those listed above) pays an 15% inheritance tax on all values over $25,000.
Kentucky
Kentucky Inheritance tax: Between 4% and 16%
Kentucky Estate tax: None
Kentucky is a little more tax-friendly (if certain people inherit your assets). Most relatives can avoid any tax liability when they inherit your assets. Children, stepchildren, grandchildren and siblings are all exempt from paying the inheritance tax in Kentucky. Other relatives aren’t so lucky.
- Nieces, nephews, great-grandchildren, aunts, uncles, and children-in-law are charged between 4% and 16% inheritance tax. However, they do get a small exemption of $1,000.
- Everyone else’s tax rate is 6% to 16%, and they get an even smaller exemption of $500.
Honorable mention: Iowa
While not a significantly expensive state for the dead (anymore), the Hawkeye state still deserves an honorable mention.
Iowa: While there is currently an inheritance tax in Iowa, you can avoid leaving heirs with the tax burden if you can stay alive until 2025 when the tax is eliminated. Iowa has already begun phasing it out.
As a result, if you die in 2024, loved ones will pay 80% less than the original "death tax." When assets are valued at $25,000 or less, heirs won’t pay a thing regardless of when you die.
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