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Do You Need To Worry About State Estate And Inheritance Taxes?

You might, if you live in New York or Massachusetts.

Since February 15, 2011, the District of Columbia and 22 other states, including New York, have begun imposing estate, inheritance, or both of these taxes. According to Forbes, these state estate taxes are becoming a large concern for many families this year even with federal estate taxes currently allowing a $5 million tax exemption.

Most of the states that have estate taxes, such as New York, Massachusetts, and Maine, generally impose a top rate of 16 percent while exempting $1 million or less for every estate, while other states may vary from the norm. North Carolina, for instance, has a top tax rate of 16 percent but allows for an exemption of $5 million.

Other states may have an altogether different tax rate and exemption amount such as Connecticut, which imposes a top rate of 12 percent and exempts $3.5 million.

There are six states that only levy an inheritance tax: Nebraska, Iowa, Indiana, Kentucky, Tennessee, and Pennsylvania. The top tax rate for each state is different and typically depends on the relationship the beneficiary has with the deceased and the taxes that are imposed (in some cases) on the first dollar of a bequest. Iowa and Pennsylvania are the only two states that do not include any tax exemptions on inheritances.

Maryland and New Jersey are the only states that impose both estate and inheritance taxes and include exemptions.

However, inheritances to a spouse remain free from state estate taxes, just like in the federal system. To learn more about how federal or New York state estate taxes and exemptions may affect you and your heirs, seek legal counsel from a knowledgeable NY estate planning lawyer who can provide a more in-depth explanation on these taxes and make sure your rights and interests are protected.

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