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State Inheritance, Estate and Gift Taxes— Lucio & Becker 169

Appendix A

State Inheritance, Estate and Gift Taxes Prepared by John Lucio and John Becker

A. Overview and Purpose The purpose of this Appendix is to explain the basic structure of the state death taxes that apply in the 20 northeastern states that were involved in the Forest Service funded project, “Estate Planning Opportunities and Strategies for Private Forestland owners in the Northeast Region.” State death tax is a phrase that is used to refer to a variety of different taxes including inheritance, succession and estate taxes. In some states these taxes are the principal taxes with which most property owners will contend. Therefore, these taxes are important elements in an estate plan whose objective is to effectively minimize tax liabilities. In other states, a large number of property owners will not face these taxes at all, so there is no general statement that can be made about the extent to which these taxes will be a problem for land owners. Of the various types of state tax systems, many states impose more that one type of these taxes, while some impose only one of them. States also offer various types of special use valuation opportunities, and installment payment of tax provisions, as well as impose additional taxes such as state gift taxes and generation skipping transfer taxes.1 Twenty states were considered in this analysis. Of that number several states impose an inheritance tax that is a levy on the right to receive property imposed on the heirs, or a death tax that is a levy on the right to transfer property imposed on the decedent's estate. Inheritance tax states typically impose higher tax rates on property transferred to individuals who are more distantly related (by marriage or blood) to the decedent. In many of these systems, transfers to spouses are exempt from the tax entirely. This recognizes a willingness on the part of the taxing authority to defer any inheritance tax until the spouse passes away and the property is transferred to other family members. A state gift tax is also levied in some states, usually on gifts over a specified exemption amount that is given to someone other than the donor’s spouse. In a few states, transfers before death are considered in the calculation of an otherwise applicable inheritance tax. 1 See general discussion in “State estate and gift tax provisions.” Daniel M. Peters; Harry L. Haney Jr.; Debra S. Callihan. Available online at < http://web6.infotrac.galegroup.com/itw/infomark/410/806>

170 State Inheritance, Estate and Gift Taxes— Lucio & Becker Of the states considered the majority of them impose an estate tax which is sometimes known as a “pick-up” tax because it “picks-up” the amount of any unused state death tax credit in those estates that are subject to federal estate tax. As originally conceived, the state death tax credit was intended to allow an estate that is subject to federal estate tax to receive a credit for taxes paid at the state level as a result of the death. When the state “death” tax liability is less than the maximum allowable state tax death credit, a pickup tax is imposed by the state equal to the difference, thereby causing the state tax liability to equal the maximum allowable state tax death credit. Without this state estate tax, federal estate taxes would be higher. Imposing the tax allows states to gain revenue that might otherwise pass to the federal government. B. Lesson Objectives Following completion of this chapter you will be able to accomplish the following tasks: 1. Identify the types of inheritance and estate taxes that apply in these states. 2. Identify the general tax rates that are applied and estimate the amount of tax that will be due

as a result of applying any of these taxes. 3. Understand the role that state inheritance and estate taxes play in developing an effective

estate plan. CONNECTICUT What Type of Tax? Succession Tax The Connecticut Succession Tax is currently being phased out and will be totally eliminated by January 1, 2005. The amount of property exempted from the tax varies depending upon the relationship of the decedent to those who will receive the property. Estate Tax Estate Taxes: In the absence of any other direction or decision made by the decedent in a will or other written document, beneficiaries of the estate share the burden of federal and Connecticut estate taxes on a "pro rata" basis. The estate tax is based on the value of the gross estate (and the value of certain lifetime gifts made by the decedent) adjusted for various expenses, deductions and credits (and gift tax paid during the decedent's lifetime). The Connecticut Estate tax also allows the following deductions and credits in the calculation of tax due: 1. Marital Deduction: An unlimited deduction is allowed for property passed to the spouse of

the decedent.


2. Exemption Equivalent to the Unified Credit: There is a separate exemption equivalent that

allows each individual to pass the first $1,000,000 in 2002 or 2003 tax free. This exemption equivalent increases to $3,500,000 in 2009 when the credit is fully phased in. In 2010, the exemption equivalent is repealed and returns in 2011 at the $1,000,000 level.

3. Charitable Deduction: A deduction is allowed for the fair market value of property passing to

public, charitable or religious organizations. Gift Taxes Residents are taxed on all gifts of intangible property and on gifts of real property and tangible personal property located in Connecticut. Nonresidents are taxed on gifts of real and tangible personal property located in Connecticut. Similar to the federal gift tax, gifts that are subject to the state gift tax must be gifts of a present interest and a gift tax annual exclusion equal to $11,000 per person per year is allowed. For state gift tax purposes, the annual exclusion amount will also be indexed for inflation. Succession Tax Rates $0 to $50,000, tax is $0 $ 50,000 to $150,000, tax is $0 plus 4.29% over $50,000 $150,000 to $250,000, tax is $4,290 plus 5.72% over $150,000 $250,000 to $400,000, tax is $10,010 plus 7.15% over $250,000 $400,000 to $600,000, tax is $20,735 plus 8.58% over $400,000 $600,000 to $1,000,000, tax is $37,895 plus 10.01% over $600,000 Over $1,000,000, tax is $77,935 plus 11.44% over $1,000,000 Tax Exemptions are described in the tables below: Succession Tax As of July 1, 1988, the succession tax on amounts passing to spouses was eliminated. Currently there are three classes of inheritors, each with different tax rates: Class A – A decedent’s parent, grandparent, adoptive parent, natural or adopted descendant (such as a daughter, son, grandchild, or great-grandchild).

Exemption amount for property inherited by Class A:

Effective date of exemption increase:

Property under $ 250,000 1/1/97 Property under $ 500,000 1/1/98 Property under $ 800,000 1/1/99 Property under $2,000,000 1/1/00 Tax on Class A is eliminated 1/1/01

172 State Inheritance, Estate and Gift Taxes— Lucio & Becker Class B – A decedent’s full or half brother or sister, natural or adopted descendant of such brother or sister, stepchild, or spouse or unmarried widow(er) of the descendant’s natural or adopted child.

Exemption amount for property inherited by Class B:


Property under $ 200,000 1/1/99 Property under $ 400,000 1/1/00 Property under $ 600,000 1/1/01 Property under $1,500,000 1/1/02 Tax on Class B is eliminated 1/1/03

Class C – Any other beneficiary not included above. (For example, uncles, aunts, cousins, sister-in-law, brother-in-law, stepbrother, stepsister, unrelated individuals, associations, corporations.)

Exemption amount for property inherited by Class C:


Property under $ 250,000 1/1/01 Property under $ 500,000 1/1/02 Property under $ 800,000 1/1/03 Property under $2,000,000 1/1/04 Tax on Class C is eliminated 1/1/05

Valuation Property is taxed at its fair market value as of the date of death When are Taxes Due? Succession taxes are due six months after a decedent’s death. Estate taxes are due within nine months after a person’s death. DELAWARE What Type of tax? Estate Tax Delaware imposes an estate tax on the transfer of the property of every decedent who was a resident of Delaware at the time of death. The amount of the tax is equal to the amount of credit


allowable under the provisions of the federal estate tax laws for the state death tax credit for estate, inheritance, legacy and succession taxes paid to any state.2 The estate of every decedent who was a resident of Delaware at the time of death shall be allowed a credit against the tax otherwise due for the aggregate amount of all estate, inheritance, legacy and succession taxes actually paid to any other state in respect to any property owned by the decedent or subject to taxes as part of the estate and for which a credit for such taxes paid to any other state is allowable under the federal estate tax laws.3 An estate tax is also imposed upon the transfer of the estate of every decedent who at the time of death was a nonresident of Delaware of that part of the property which is taxable for federal estate tax purposes and which consists of real and tangible personal property situated in Delaware.4 An estate tax return shall be filed in all cases when a resident decedent or a nonresident decedent having real or tangible personal property situated in Delaware is required to file a federal estate tax return.5 What are the Tax Rates? The tax rates for the estate tax are set according to the state death tax credit that is allowed under the federal estate tax law. Are there Tax Exemptions? Individuals who do not file federal estate tax returns since their federal gross estate is below the exemption equivalent to the unified credit will not need to consider the state estate tax. Valuation Property that is subject to the state estate tax is valued at its fair market value of the date of the decedent’s death. When is Tax Due? The state estate tax is due when the federal estate tax is due.

2 Id §1502 (b) 3 Id §1503(a) 4 Id §1504(a) 5 Id §1505

174 State Inheritance, Estate and Gift Taxes— Lucio & Becker ILLINOIS What Type of Tax? Estate Tax Illinois imposes an estate tax on every taxable transfer involving transferred property that is located within the State of Illinois. This physical location is referred to as the “tax situs” of the property For residents of Illinois, all of their property, except real and personal property that is physically located in another state, has its tax situs in Illinois. For a nonresident of Illinois, only real and tangible personal property that is physically located in Illinois is considered to have its tax situs in the state. What are the Tax Rates? The amount of the Illinois estate tax is the maximum state death tax credit allowable with respect to the taxable transfer reduced by the lesser of: (1) The amount of the state death tax credit paid to any other state or states; and (2) the amount determined by multiplying the maximum state tax credit allowable with respect

to the taxable transfer by the percentage which the gross value of the transferred property not having a tax situs in Illinois bears to the gross value of the total transferred property.

Are there Tax Exemptions? Estates that are not required to file federal estate taxes are exempt from the state estate tax. Valuation The Illinois estate tax is determined on the fair market value of the decedent’s property as of the decedent’s date of death. When are Taxes Due? The Illinois tax shall be paid and the Illinois estate tax return shall be filed on the due date or dates, respectively, including extensions, for paying the related federal transfer tax and filing the related federal return. This return is filed and paid by the same person or persons, respectively, who are required to pay the related federal estate tax and file the related federal return.


INDIANA What Type of Tax? Inheritance Tax An inheritance tax is imposed at the time of a decedent's death on certain property interest transfers made by the decedent.6 The inheritance tax applies to a property interest transfer made by a resident decedent if the interest transferred is in: (1) real property located in this state; (2) tangible personal property which is not located outside this state; or (3) intangible personal property regardless of where it is located.7 The inheritance tax applies to a property interest transfer made by a nonresident decedent if the interest transferred is in real property located in this state, regardless of whether the property is held in a trust or whether the trustee is required to distribute the property in-kind.8 If two or more individuals jointly hold property with rights of survivorship, the exercise of the rights of the surviving joint owner or owners to the immediate ownership or possession and enjoyment of the property upon the death of one of the joint owners is a transfer to which the inheritance tax applies.9 The value of the property so transferred equals the remainder of the total value of the jointly held property minus the value of that portion of the jointly held property that the surviving joint owner or owners prove belonged to him or them.10 What are the Tax Rates? The net taxable value of property interests transferred by a decedent to a particular transferee equals the remainder of: the total fair market value of the property interests transferred by the decedent to the transferee under a taxable transfer of transfers minus the total amount of exemptions and deductions under Indiana law as described below.11

6 Ind. Stat. Ann. Tit 6, IC 6-4.1-2-1 (1996) 7 IC 6-4.1-2-2 8 IC 6-4.1-2-3. 9 IC 6-4.1-2-5. 10 Id. 11 IC 6-4.1-5-1.

176 State Inheritance, Estate and Gift Taxes— Lucio & Becker Class A Beneficiary Relationship To Decedent Exempt Amount Each lineal ancestor and descendant of the decedent transferor 100,000 Value Tax Rate From To Amount + Percent Value Over 0 25,000 0 + 1 0 25,000 50,000 250 + 2 25,000 50,000 200,000 750 + 3 50,000 200,000 300,000 5,250 + 4 200,000 300,000 500,000 9,250 + 5 300,000 500,000 700,000 19,250 + 6 500,000 700,000 1,000,000 31,250 + 7 700,000 1,000,000 1,500,000 52,250 + 8 1,000,000 1,500,000 Unlimited 92,250 + 10 1,500,000 Class B Beneficiary Relationship To Decedent Exempt Amount Each brother and sister of decedent transferor 500 Each descendant of a brother or sister of decedent transferor 500 Each spouse, widow, or widower of decedent transferor's children 500 Value Tax Rate From To Amount + Percent Value Over 0 100,000 0 + 7 0 100,000 500,000 7,000 + 10 100,000 500,000 1,000,000 47,000 + 12 500,000 1,000,000 Unlimited 107,000 + 15 1,000,000


Class C Beneficiaries Relationship To Decedent Exempt Amount Each individual not referred to above 100 Value Tax Rate From To Amount + Percent Value Over 0 100,000 0 + 10 0 100,000 1,000,000 10,000 + 15 100,000 1,000,000 And above 145,000 20 Are there Tax Exemptions? Any transfer described in the Internal Revenue Code as exempt or tax free, such as a gift to charity is exempt from the inheritance tax.12 Additionally, each property interest, which a decedent transfers to his surviving spouse, is exempt from the inheritance tax imposed as a result of his death.13 The proceeds from life insurance on the life of a decedent are exempt from the inheritance tax imposed as a result of his death unless the proceeds become subject to distribution as part of his estate and subject to claims against his estate.14 Valuation The value of the property subject to the inheritance tax will be assessed as the Fair Market Value. For purposes of determining the fair market value of each property interest transferred by a decedent, the appraisal date for the property interest is the date used to value the property interest for federal estate tax purposes. However, if no federal estate tax return is filed for the decedent's estate, the appraisal date for each property interest transferred by the decedent is the date of the decedent's death.15 When are Taxes Due? The personal representative of a resident decedent's estate or the trustee or transferee of property transferred by the decedent shall file an inheritance tax return with the appropriate probate court

12 IC 6-4.1-3-1. See also 26 U.S.C. §2055(a) 13 IC 6-4.1-3-7 14 IC 6-4.1-3-6. 15 IC 6-4.1-5-1.5.

178 State Inheritance, Estate and Gift Taxes— Lucio & Becker within nine months after the date of the decedent's death.16 If, however, the appropriate probate court finds that because of an unavoidable delay an inheritance tax return cannot be filed within nine months after the date of decedent's death, the court may extend the period for filing the return.17 If the inheritance tax imposed as a result of a decedent's death is paid within one year after his date of death, the person making the payment is entitled to a five percent reduction in the inheritance tax due.18 However, if a person liable for payment of inheritance tax does not pay the tax on or before the due date, he shall pay interest on the delinquent portion of the tax at the rate of ten percent per year from the date of the decedent's death to the date payment is made.19 IOWA What Type of Tax? Inheritance Tax The Iowa Inheritance Tax is a charge, not on property left by decedent, but rather on the privilege to receive the property by will or intestate succession.20 The estates of all deceased persons in any property whether the decedents be inhabitants of Iowa or not, and whether such estates consist of real, personal, or mixed property, tangible or intangible, and any interest in, or income from, any estate or property at the death of the decedent owner within Iowa shall be subject to the tax Estate Tax An amount equal to the federal estate tax credit for state death taxes as allowed in the Internal Revenue Code is imposed upon every transfer of the net estate of every decedent, being a resident of, or owning property in Iowa. 1. Where decedent is a resident of Iowa and all property is located in Iowa, or is subject to the

jurisdiction of the courts of Iowa, an amount equal to the total credit as allowed under federal statute shall be paid to the state of Iowa. Where decedent is a nonresident or where property is located outside the state of Iowa and not subject to jurisdiction of Iowa courts, the tax shall be prorated on the basis that the Iowa property bears to the total gross estate for federal tax purposes.

16 IC 6-4.1-4-1. 17 IC 6-4.1-4-2. 18 IC 6-4.1-9-2. 19 IC 6-4.1-9-1. 20 Matter of Bliven’s Estate, 236 N.W. 366 (1975).


2. The total tax or the Iowa share of said tax shall be credited with the amount of any

inheritance tax due the state of Iowa. What are the Inheritance Tax Rates? When the property or any interest in property, or income from property passes to the brother or sister, son-in-law, or daughter-in-law, the rate of tax imposed on the individual share so passing shall be as follows:

$0-$12,500 5% $12,500-$25,000 6% $25,000-$75,000 7% $75,000-$100,000 8% $100,000-$150,000 9% $150,000 - up 10%

Property, interest in property, or income passing to the surviving spouse, and parents, grandparents, great- grandparents, and other lineal ascendants, children including legally adopted children and biological children entitled to inherit under the laws of this state, stepchildren, and grandchildren, great-grandchildren, and other lineal descendants, the tax is as follows:

Unlimited 0% When the property or interest in property or income from property, taxable under this chapter, passes to a person not included in either of the above paragraphs, the rate of tax imposed on the individual share is as follows:

$0-$50,000 10% $50,000-$100,000 12% $100,000 - up 15%

Are there Tax Exemptions? Exemptions from the inheritance tax apply in the following situations: 1. When the entire estate of the decedent does not exceed the sum of twenty-five thousand

dollars after deducting the liabilities. 2. When the property passes for a charitable, educational, or religious purpose as defined in

sections 170(c) and 2055 of the Internal Revenue Code.

180 State Inheritance, Estate and Gift Taxes— Lucio & Becker

3. When the property passes to public libraries or public art galleries within Iowa, open to the use of the public and not operated for gain, or to hospitals within this state, or to trustees for such uses within this state, or to municipal corporations for purely public purposes.

4. Bequests for the care and maintenance of the cemetery or burial lot of the decedent or the

decedent's family, and bequests not to exceed five hundred dollars in any estate of a decedent for the performance of a religious service or services by some person regularly ordained, authorized, or licensed by some religious society to perform such service, which service or services are to be performed for or in behalf of the testator or some person named in the testator's last will.

5. On the value of that portion of installment payments which will be includable as net

income as defined in Iowa Code section 422.7 as received by a beneficiary under an annuity which was purchased under an employees pension or retirement plan.

6. On property in an individual development account in the name of the decedent that passes

to another individual development account or the state human investment reserve pool. An individual development account is an account that has been certified as an individual development account pursuant to Iowa Code chapter 541A.

7. On the value of that portion of any lump sum or installment payment that is received by a

beneficiary under an annuity that was purchased under an employee’s pension or retirement plan where the employee is a nonresident of Iowa at the time of death.

8. On the value of that portion of any lump sum or installment payments that is received by

a beneficiary under an annuity that was purchased under an employee’s pension or retirement plan that was excluded from net income under Iowa Code section 422.7.

Valuation The tax shall be computed based upon one of the following: a. The fair market value of the property in the ordinary course of trade. b. The alternate value of the property, if the personal representative so elects, that has been

established for federal estate tax purposes under the Internal Revenue Code. The election shall be exercised on the return by the personal representative or other person signing the return, within the time prescribed by law for filing the return or before the expiration of any extension of time granted for filing the return.


When are Taxes Due? The tax imposed accrues at the death of the decedent owner, and shall be paid to the department of revenue and finance on or before the last day of the ninth month after the death of the decedent owner. An extension may be granted. If granted, the fee will extend to a date not exceeding ten years from the last day of the month in which the death of the decedent occurred. MAINE What Type of Tax? Estate Tax The Maine Estate Tax is imposed upon the transfer of the estate of every person who was a Maine resident at the time of death. What are the Tax Rates? The tax is equal to the amount by which the credit allowed against the federal estate tax for state death taxes exceeds the amount of such taxes actually paid, provided that the allowance for such taxes may not exceed that percentage of the federal tax credit which the Maine taxable portion of the estate is to the total estate. A similar tax is imposed on real and tangible personal property having Maine situs passing by reason of the death of a person not a Maine resident, at the same percentage of the federal allowance for state death taxes that the value of the property taxable in Maine bears to the total estate.21 Are there Tax Exemptions? Estates that are not subject to federal estate tax are not subject to the state estate tax. Valuation Property subject to this tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The tax is due when the federal estate tax return is filed.

21 See generally 36 M.R.S.A. c. 575

182 State Inheritance, Estate and Gift Taxes— Lucio & Becker MARYLAND What Type of Tax? Inheritance Tax The inheritance tax is imposed on the clear value of property that passes from a decedent to some beneficiaries. The tax is imposed on property that passes under a will, the intestate laws of succession, and property that passes under a trust, deed, joint ownership, or otherwise. Estate Tax Often referred to as the "pick-up" tax, the Maryland estate tax generally is equal to the maximum State Death Tax Credit allowed on the federal return. What are the Tax Rates? Estate Tax Maryland estate tax is calculated by deducting the inheritance tax actually paid to the Register of Wills from the maximum allowable Credit for State Death Taxes on the federal estate tax return. If the inheritance tax paid is equal to or exceeds the Credit for State Death Taxes, no Maryland estate tax is due. Inheritance Tax For decedents dying: Before 7-1-1999 On or after 7-1-1999 On or after 7-1-2000 Property passing to: A child, spouse, parent or grandparent

1% 0.9% Exempt

Siblings 10% 8% Exempt Other individuals 10% 10% 10% Are there Tax Exemptions? Inheritance Tax Property passing to a charity and tenants by the entireties property passing to a surviving spouse is exempt from the tax. Effective July 1, 2000, all property passing to a surviving spouse and certain other persons is exempt.


Valuation Property subject to state inheritance and estate tax is valued at fair market values as of the date of the decedent’s death. When is Tax Due? Inheritance and Estate Tax Maryland inheritance and estate tax is due nine months from the date of death. The comptroller will grant an extension to file the return, upon request, if the Internal Revenue Service also grants an extension to file the federal return. There are also provisions for granting an alternative payment schedule for the tax payment. MASSACHUSETTS What Type of Tax? Estate Tax Massachusetts imposes an estate tax based on the allowable federal estate tax credit for state death taxes or a “pick-up” tax. Under this system, no Massachusetts estate tax is due unless an estate is required to file a federal estate tax return. Thus, the Massachusetts filing threshold follows the federal filing threshold, due to increase as follows: $1,000,000 for deaths in 2002 and 2003. The estate tax is imposed upon the transfer of real property situated in the Commonwealth of Massachusetts and upon tangible personal property having an actual situs in the Commonwealth of every person who at the time of his death was a non-resident of Massachusetts.22 Massachusetts Estate Tax Exemptions If an estate need not file a federal estate tax return, it is exempt from the state estate tax. Valuation of Property Under the Massachusetts Estate Tax Property in the decedent’s estate shall be valued as of the date of death of the decedent;23 provided, however, that if an alternate valuation has been properly elected for purposes of the federal estate tax in accordance with Internal Revenue Codes.24 All property includible in the

22 65C:2A 23 65C:5 24 See 26 U.S.C. §2032

184 State Inheritance, Estate and Gift Taxes— Lucio & Becker gross estate is reported at its fair market value on the date of the decedent’s death or on the alternate valuation date six months later. The gross estate for federal estate tax purposes includes all property in which the decedent had an interest. It also includes: Certain transfers made during the decedent’s life without an adequate and full consideration in money or money’s worth; Annuities; Joint estates with right of survivorship; Tenancies by the entirety; Life insurance proceeds (even though payable to beneficiaries other than the estate); Property over which the decedent possessed a general power of appointment; Dower or courtesy (or statutory estate) of the surviving spouse; and Community property to the extent of the decedent’s interest as defined by applicable law.25 When are Taxes Due? The executor is obligated to pay the tax imposed on the estate.26 Where the gross estate exceeds the filing threshold, the return and payment of tax are due nine months after the date of the decedent’s death. What are the Tax Rates? The tax rates of the Massachusetts estate tax are the rates set in the federal estate tax law’s state death tax credit. Are there Tax Exemptions? The Massachusetts filing threshold follows the federal filing threshold that is $1,000,000 for deaths in 2002 and 2003.27 MICHIGAN What Type of Tax? Estate Tax For the Michigan Estate Tax, the “gross estate” for federal estate tax purposes is the starting point for determining how the Michigan estate tax applies. If the personal representative is required to file a federal estate tax return, the personal representative will also have to file a Michigan estate tax return. This is true even if no tax is owed. If no federal estate tax return is due, then no Michigan estate tax return is due. If a federal estate tax is owed there will be a Michigan estate tax to pay that is equal to the credit for state death taxes paid to any state. 25 Massachusetts Department of Taxation. Available online at <http://www.state.ma.us.gov> 26 65C:6 27 See generally 26 U.S.C. §2011.


What are the Tax Rates? The Michigan estate tax rates are set by the federal estate tax state death tax credit Are There Tax Exemptions? Those estates that are not subject to federal estate tax are also exempt from Michigan estate tax. Valuation Property that is subject to the state estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The state estate tax is due when the federal estate tax return is filed. MINNESOTA What Type of Tax? Estate Tax The Minnesota Estate Tax is a tax imposed upon the transfer of estates of decedents.28 The tax imposed shall be an amount equal to the proportion of the maximum credit allowable under section 2011 of the Internal Revenue Code for state death taxes as the Minnesota gross estate bears to the value of the federal gross estate. For a resident decedent, the tax shall be the maximum credit allowable under section 2011 of the Internal Revenue Code reduced by the amount of the death tax paid the other state and credited against the federal estate tax if this results in a larger amount of tax than the proportionate amount of the credit. The tax determined under this paragraph shall not be greater than the maximum credit allowable under section 2011 of the Internal Revenue Code.29 Any representative or trustee who has in possession or under control, property, the transfer of which is subject to any tax imposed by this chapter and from which such tax may lawfully be paid by the representative or trustee, shall either deduct the amount of tax due or shall collect from the person entitled to such property, the amount of tax due, together with any accrued interest thereon, before completing the transfer of such property or making delivery thereof and shall pay to the commissioner all taxes and interest so deducted or collected.30 28 Minn. Stat. §291.01. 29 Minn Stat. §291.03. 30 Id §291.12 Sub. 1.

186 State Inheritance, Estate and Gift Taxes— Lucio & Becker What are the Tax Rates? The tax rate for the state estate tax is set by the federal estate state death tax credit Are there Tax Exemptions? Estates that are not subject to federal estate tax are not subject to state estate tax Valuation Property subject to state estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The state estate tax is due when the federal estate tax return is filed. MISSOURI What Type of Tax? Estate Tax The Missouri Estate tax is imposed on the transfer of every decedent's estate that consists in whole or in part of property having a tax situs within the state of Missouri. The Missouri estate tax shall be the maximum credit for state death taxes allowed by Internal Revenue Code Section 2011 but not less than the maximum credit for state death taxes allowable to the estate of a decedent against the federal estate tax by Section 2011.31 If the decedent's estate contains property having a tax situs not within the state of Missouri, then the tax shall be reduced to an amount determined by multiplying the tax by a fraction whose numerator is the gross estate excluding all property having a tax situs not within the state of Missouri at the decedent's death and whose denominator is the gross estate. In determining the fraction, no deductions shall be considered and the gross estate shall not be reduced by a mortgage or other indebtedness for which the decedent's estate is not liable.32 Property shall have a tax situs within the state of Missouri if: (1) It is real estate or tangible personal property and has actual situs within the state of Missouri; or (2) It is intangible personal property and the decedent was a resident.33

31 Missouri Stat. §145.011 (2000). 32 Id. §145.041. 33 Id. § 145.102.


What are the Tax Rates? The tax rate for the Missouri estate tax is set by the federal estate state death tax credit Are There Tax Exemptions? Estates that are not subject to the federal estate tax are not subject to the state death tax credit. Valuation Property that is subject to the state estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The executor shall pay the estate tax liability,34 and shall be paid within nine months after the death of the decedent.35 The director of revenue may grant a reasonable extension of time for payment of tax, or for filing any return, however, no extension shall exceed six months.36 NEW HAMPSHIRE What Type of Tax? Inheritance Tax All property within the jurisdiction New Hampshire, real or personal, and any interest therein, belonging to domiciliaries of the state; and all real estate within the state, or any interest therein, belonging to persons who are not domiciliaries of the state; which pass by will, or by the laws regulating intestate successions, or by deed, grant, bargain, sale or gift, made in contemplation of death, or made or intended to take effect in possession or enjoyment at or after the death of the grantor or donor, to any person, absolutely or in trust, shall be subject to a tax of 18 percent of its fair market value for the use of New Hampshire.37 The inheritance tax is to be repealed for estates of decedents who pass away on or after January 1, 2003. Estate Tax The amount of the New Hampshire estate tax shall be equal to the maximum federal estate tax credit allowable for state death taxes with respect to property subject to New Hampshire’s

34 Id. §145.051. 35 Id. §145.511. 36 Id. § 145.551. 1. 37 § 86:6 (I).

188 State Inheritance, Estate and Gift Taxes— Lucio & Becker jurisdiction to impose a tax.38 If only a portion of a decedent's estate is located in this state, such maximum tax credit shall be determined by multiplying the entire amount of the credit allowable by the percentage that the gross value of the portion of the decedent's estate located in New Hampshire bears to the gross value of the entire estate.39 Additionally, this tax shall be imposed in every case in which the credit for state death taxes paid is available as a credit on the decedent's federal estate tax return.40 What are the Tax Rates? Property subject to tax under the New Hampshire inheritance tax is taxed at the rate of 18% of the fair market value of the property. Are there Tax Exemptions? Real and personal property of the decedent is exempt from the tax, if it passes to or for the use of any of the following: (a) The decedent's spouse; (b) The decedent's lineal ascendants and the decedent's lineal descendants together with the spouses of said ascendants and descendants, provided that such ascendants and descendants have not been adopted by another person; (c) The decedent's adopted children together with the spouses and lineal descendant of such adopted children; or (d) The care of cemetery lots in New Hampshire.41 Valuation The tax is assessed upon the fair market value of the property at the time of decedent's death or the alternate valuation as determined by section 2032 of the United States Internal Revenue Code.42 When is Tax Due? All taxes imposed through legacies and successions shall be due and payable to the department of revenue administration 9 months after date of the decedent's death.43

38 Id. §87:1(II). 39 Id. §87:1(III). 40 Id. §87:1(IV). 41 § 86:6(II). 42 § 86:40. 43 § 86:54.


NEW JERSEY What Type of Tax? New Jersey Inheritance Tax New Jersey imposes a transfer inheritance tax, at graduated rates, on property having a total value of $500 or more, which passes from a decedent's estate to a beneficiary.44 New Jersey Estate Tax In addition to the inheritance tax, New Jersey imposes a separate estate tax which is designed to absorb the maximum credit allowable on the Federal estate tax return for state death taxes. The New Jersey estate tax does not increase the estate's total tax obligation. An estate may be subject to the New Jersey estate tax even though there is no New Jersey inheritance tax payable. What are the Tax Rates? New Jersey Inheritance Tax Transfers to a brother, sister, daughter-in-law, or son-in-law: If the inheritance is more than $25,000, the tax is 11 percent of the entire amount up to $1,100,000.00 and increases to 16% on transfers to these beneficiaries that are in excess of $1,700,000. Every other beneficiary pays 15 percent on the total amount up to $700,000.00 and 16 percent on transfer above that amount. Charitable, religious, or benevolent institutions: Each beneficiary in this class is tax exempt entirely. Money or property left to the State of New Jersey, a municipality, or a nonprofit educational institution is exempt from inheritance tax. New Jersey Estate Tax A New Jersey estate tax is due only if the amount of allowable state death tax credit in the Federal estate tax is greater than the amount of New Jersey Inheritance Taxes paid. Treatment of Gifts for New Jersey Inheritance Tax Purposes New Jersey does not levy a tax on gifts, but will impose an inheritance tax on transfers in anticipation of death. Any gift made within 3 years of death is presumed to be in anticipation of death and may be subject to New Jersey Inheritance tax. This presumption can be rebutted.

44 N.J. Stat. 54:34-1 (West 1986).

190 State Inheritance, Estate and Gift Taxes— Lucio & Becker Are There Tax Exemptions? If a decedent's death occurs on or after July 1, 1988, property passing to a decedent's surviving spouse, parents, grandparents, children, stepchildren or grandchildren is entirely exempt from the tax.45 If a decedent's death occurs on or after July 1, 1988, the first $25,000 of property passing to his/her sisters, brothers, daughters-in-law or sons-in-law is exempt from the tax.46 When is Tax due? New Jersey inheritance tax is due within eight months of a decedent’s death. New Jersey estate tax is due within nine months of a decedent’s death. NEW YORK What Type of Tax? Estate Tax

New York State imposes an estate tax upon the transfer of the New York taxable estate of every deceased individual who was a resident of New York at the time of his or her death. The tax is also imposed upon the estates of nonresidents, but only real and tangible personal property located within the State of New York are subject to taxation.

What are the Tax Rates?

Effective February 1, 2000, the New York estate tax will be equal to the maximum allowable federal estate tax credit for state death taxes as it existed on July 22, 1998. Legislative amendments that provide for the reduction of this credit in future years are not part of the New York estate tax law as the law incorporates them by reference to a specific date.

Are There Tax Exemptions?

If the gross value of an estate of a New York decedent does not exceed the federal "exemption equivalent, of $1,000,000, a New York estate tax return need not be filed. Although the federal exemption equivalent is scheduled to increase in years following 2003, these increases are not incorporated into the New York State Tax Law, so the filing threshold will remain at $1,000,000. Therefore, beginning in 2004, some estates will be required to file a New York estate tax return even if they are not required to file a federal estate tax return.

45 Id. 54:34-2 (a)(2). 46 Id. 54:34-2 (c)(1).


Valuation

Property that is subject to a state estate tax will be valued at its fair market value as determined as of the date of the decedent’s death. The New York estate tax law does not recognize the Qualified Conservation Easement Exclusion that is provided under the federal estate tax law. Therefore, an estate that takes advantage of this valuation exclusion must adjust the value of the estate and add back the amount deducted in the calculation of federal estate tax.

When is Tax Due?

The New York estate tax return must be filed within nine months after the decedent’s date of death.47

OHIO What Type of Tax? Estate Tax The Ohio estate tax is a graduated tax levied on the transfer of assets of an estate with a gross value of $338,000 or more.48 Assets that must be reported include, but are not limited to real estate located in Ohio, bank accounts, stock, tangible personal property (i.e autos, boats, furniture, etc.), trust assets, business interests, and life insurance proceeds paid to the decedent's estate. Expenses that are deductible include, but are not limited to: funeral expenses, unreimbursed medical expenses, real estate mortgages, real estate taxes, attorney and/or executor fees, income taxes, utilities, and charitable contribution. Insurance on the life of the decedent, payable to a beneficiary other than the estate, is not includible for Ohio estate tax purposes. Insurance payable to the estate and insurance contracts, such as matured endowment or supplemental contract wherein the insurance or risk feature ceased prior to death, are includible for Ohio estate tax purposes. The Ohio marital deduction is a deduction allowed a surviving spouse, equal to the net value of assets passing from the decedent. Even though the marital deduction may reduce the Ohio estate tax to zero, a return must still be filed.

47 See New York Tax Law § 971(a) and 26 U.S.C. § 6018 (IRC). 48 See generally Ohio Stat. Chap. 5731.

192 State Inheritance, Estate and Gift Taxes— Lucio & Becker What are the Tax Rates? Net Taxable Estate Tax Rate less than $40,000 2% over $ 40,000 but not over $100,000 $ 800 + 3% of excess over $ 40,000 over $100,000 but not over $200,000 $ 2,600 + 4% of excess over $100,000 over $200,000 but not over $300,000 $ 6,600 + 5% of excess over $200,000 over $300,000 but not over $500,000 $11,600 + 6% of excess over $300,000 over $500,000 $23,600 + 7% of excess over $500,000 Are there Tax Exemptions? Estates are allowed a credit of $13,900 that can be applied to the Ohio estate tax. Valuation Property that is subject to the Ohio estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? Estates with assets with a gross value of $338,000 or more are required to file an Ohio estate tax return regardless of whether a Federal estate tax return is filed. The return is filed in duplicate with the Probate Court in the county where the decedent was domiciled at the time of death, and payment of any taxes due are made at the County Auditor's office. The executor or administrator of the estate is responsible for filing the return. Return,49 and must be filed within 9 months of the decedent's date of death.50

49 Id 5731.21. 50 Id 5731.23.


PENNSYLVANIA What Type of Tax? Inheritance Tax The Pennsylvania inheritance tax is imposed on the value of the decedent's estate transferred to beneficiaries by will or intestacy.51 Additionally, certain transfers while the transferor is still alive are also subject to inheritance tax. Pennsylvania Estate Tax The estate tax is a “pick-up” tax imposed to absorb the maximum amount of credit allowed by federal estate tax law for state death taxes. For residents, the estate tax represents the difference between the Pennsylvania inheritance tax plus death taxes paid to other states and the maximum federal credit for state taxes allowed by federal estate tax law. If a resident owned or had an interest in real property or tangible personal property located in another state, the estate tax is reduced by the amount of death taxes paid to the other state or by a proportional amount of the federal credit, whichever is greater. For nonresidents who owned or had an interest in property located in this Commonwealth, the estate tax is the difference between the Pennsylvania inheritance tax and a proportionate share of the federal credit in the same ratio that the property located in this Commonwealth subject to federal estate tax bears to the decedent's gross federal estate. What Property is Subject to Inheritance Tax? All real property and all tangible personal property of a resident decedent, such as cash, automobiles, furniture, antiques and jewelry, located in Pennsylvania at the time of the decedent's death is taxable.52 All intangible property of a resident decedent, such as stocks, bonds, bank accounts and loans receivables is also taxable regardless of where it is located at the time of the decedent's death.53 Life insurance proceeds are also exempt from Pennsylvania inheritance tax upon the death of the insured. 54 In the case of a non-resident decedent, all real property and tangible personal property located in Pennsylvania at the time of the decedent's death is taxable.55 Intangible personal property of a non-resident is not taxable if the property is held by an institution located in Pennsylvania.56

51 Pa. Stat. Ann. Tit. 72 §9107(b) (West 2000). 52 Pa. Stat. Ann. Tit. 72 §9106 (West 2000); see also Pa. Stat. Ann. Tit. 72 §9102(1) (West 2000). 53 Pa. Stat. Ann. Tit. 72 §9102(2) (West 2000). 54 Pa. Stat. Ann. Tit. 72 §9111(d) (West 2000). 55 Pa. Stat. Ann. Tit. 72 §9102(3) (West 2000). 56 Pa. Stat. Ann. Tit. 72 §9102(4) (West 2000).

194 State Inheritance, Estate and Gift Taxes— Lucio & Becker Jointly-owned property with right of survivorship, except between husband and wife is taxable to the extent of the decedent's fractional interest in the joint property. This tax is calculated by dividing the value of the joint property by the number of joint owners at the time of the decedent's death.57 Joint property is taxable even though the act of making a decedent a joint owner of an account was for convenience purposes only. For example, if a mother places her son’s name on her savings account as a way to have someone withdraw funds from the account when she is unable to do so, if he dies before her, she will have to pay an inheritance tax upon his death because she and her son had equal access to the account. Further, if a decedent creates the joint interest in the property within a year of his/her death, the full value of the property is taxable in the decedent's estate.58 A transfer made within one (1) year of the date of death, if made without valuable and adequate consideration in money or money's worth at the time of the transfer, is subject to inheritance tax to the extent it exceeds $3,000 to each recipient during any calendar year. For instance, if you gave your entire estate to a child, but failed to survive that gift for a period of one year, that gift would be subject to a 4.5% inheritance tax to the extent it exceeded $3,000. What are the Inheritance Tax Rates? Pennsylvania inheritance tax has four tax rates. First, upon transfers of property to direct or lineal heirs (grandparents, parents, children, spouses of children) the tax is levied at a rate of 4.5 percent.59 Second, transfers to siblings are taxed at the rate of 12 percent. Siblings include those people who have at least one parent in common with the decedent, whether by blood or adoption. Third, a 15 percent rate applies to all other beneficiaries (to include nieces, nephews, etc.).60 The fourth rate, which is a tax free transfer, is for assets that are left to a surviving spouse, charities, government agencies and assets that pass from a child age 21 or younger to child’s parent. Tax Exemptions The Inheritance Tax is imposed on the gross value of your estate minus debts that you owed, funeral expenses and any other estate settlement costs.61 A $3,500 family exemption is also available and applied as a deduction in calculating the inheritance tax due. This exemption is given to specific individuals to retain or claim up to $3,500 of the decedent's property that passes by a will (living trust?) or by the Pennsylvania Intestate Laws. The family exemption is available to a decedent’s spouse, or if there is no spouse, or the spouse forfeited his/her rights, then any child of the decedent who is a member of the same household as

57 Pa. Stat. Ann. Tit. 72 §9108(a) (West 2000). 58 Pa. Stat. Ann. Tit. 72 §9107(3) (West 2000). 59 Pa. Stat. Ann. Tit. 72 §9116(a)(1) (West 2000). 60 Pa. Stat. Ann. Tit. 72 §9116(a)(2) (West 2000). 61 See generally Pa. Stat. Ann. Tit. 72 §9127 (West 2000).


the decedent may claim the exemption. In the event there is no spouse or child, the exemption may be claimed by a parent or parents who are members of the same household as the decedent. The family exemption is allowable only against assets. Valuation of Property When the transfer is made after death, the property is valued at the transferor's death.62 For inheritance tax purposes the value of land or an interest in land owned by a decedent and devoted to forest reserve, agricultural reserve or agricultural use can be valued at the value which the land has for its particular use if it is not less than ten contiguous acres in area. This opportunity is an election made by the estate’s personal representative. Determining the value of land for its particular use involves evidence of the land's capability for its particular use as derived from the soil survey information.63 This election requires a commitment to continue the use in one of the three qualifying uses, or suffer the loss of the tax savings gained by making the election. When is Tax Due? Inheritance tax payments are due nine months after the individual's death. If the Inheritance Tax is paid within three months of the decedent's death, a 5% discount is allowed.64 There may be an opportunity, however, to obtain an extension of the time required for payment. To obtain this extension, the receiver of the property must post a bond to the Commonwealth with the appropriate surety, not exceeding twice the tax computed when the bond is given.65 The estate tax is due upon the death of the decedent and becomes delinquent nine months after the decedent's death.66 No discount is allowed in paying the estate tax.67 Inheritance taxes due on the transfer of a small business may be paid in consecutive quarterly installments, with interest, beginning immediately following the expiration of nine months after the decedent’s death; the tax may be paid in twenty consecutive quarterly payments.68

62 Id. at §9121. 63 Id. 64 Pa. Stat. Ann. Tit. 72 §9142 (West 2000). 65 Pa. Stat. Ann. tit. 72 §9150 (West 2000). 66 Pa. Stat. Ann. Tit. 72 §9145(c) (West 2000). 67 Pa. Stat. Ann. Tit. 72 §9145(d) (West 2000). 68 Pa. Stat. Ann. tit. 72 §9154 Pa. Stat. Ann. Tit. 72 §9142 (West 2000) (West 2000).

196 State Inheritance, Estate and Gift Taxes— Lucio & Becker RHODE ISLAND What type of Tax? Estate Tax Rhode Island estate tax is a tax imposed on the transfer of the net estate of every resident or nonresident decedent as a tax on the right of transfer. What are the Tax Rates? The tax rate for the Rhode Island Estate tax is the maximum credit for state death taxes allowed under the federal estate tax law as it was in effect on January 1, 2001. Are there Tax Exemptions? Exemptions from federal estate tax in effect on January 1, 2001 are applicable to the state estate tax. Every executor, administrator, and heir-at-law, within nine (9) months after the death of the decedent, shall file the tax return with the tax administrator.69 However, the tax administrator has authority to grant extensions of time corresponding to an approved extension granted by the Internal Revenue Service.70 Valuation Property that is subject to the Rhode Island estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? VERMONT What type of Tax? Estate Tax Vermont’s estate tax is equal to the amount by which the credit for state death taxes allowable to the decedent’s estate exceeds state death taxes actually paid.

69 § 44-23-1. 70 § 44-23-3.


What are the Tax Rates? The state estate tax rate is set by the federal estate tax state death tax credit. Are there Tax Exemptions? Estates that are not subject to federal estate tax are not subject the state estate tax. Valuation Property that is subject to the state estate tax is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The state estate tax is due when the federal estate tax return is due. WEST VIRGINIA What Type of Tax? Estate Tax The West Virginia estate tax is a death tax imposed upon the estates of resident decedents, and the estates of nonresident decedents owning real estate or tangible personal property in West Virginia who are subject to the federal estate tax. Also subject to the tax are estates of alien decedents having real estate or tangible personal property with actual situs in West Virginia and intangible personal property physically present within West Virginia, such as stock in West Virginia corporation doing bsiness in the state, but excluding savings accounts, savings and loan associations and bank deposits unless the deposits are held and used in connection with a business operateed in whole or in part in West Virginia. . What are the Tax Rates? West Virginia’s estate tax is the credit for state death taxes computed for the federal estate tax. For estates of non-residents, the tax is apportioned. Where a resident decedent’s estate consists of real estate or tangible personal property with situs outside of West Virginia, the tax is also apportioned.

198 State Inheritance, Estate and Gift Taxes— Lucio & Becker Are there Tax Exemptions? Estates that are not subject to federal estate taxes are not subject to the state estate tax. Valuation Property that is subject to the state estate tax law is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The personal representative of the estate is required to file the return and pay any tax due within nine months after death. A copy of the federal return must accompany the West Virginia return. Personal representative means the executor, administrator, beneficiary, or any person in actual or constructive possession of any property of the decedent. WISCONSIN What type of Tax? Estate Tax The Wisconsin estate tax is imposed on the transfer of property that is subject to federal estate tax and that has a taxable situs in Wisconsin. What are the Tax Rates? The tax imposed is equal to the federal credit against the federal estate tax as finally determined. For deaths occurring before September 30, 2002, the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on the date of the decedent’s death. For deaths after September 30, 2002 and before January 1, 2008, the federal estate tax credit allowed for state death taxes is computed under the federal estate tax law in effect on December 31, 2000. For deaths occurring after December 31, 2007, the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on the date of the decedent’s death


Are there Tax Exemptions?

2000-2001 $ 675,000 2002-2003 $1,000,000 2004 $1,500,000 2005 $1,500,000 2006-2008 $2,000,000 2009 $3,500,000

Valuation Property that is subject to the state estate tax law is valued at its fair market value as of the date of the decedent’s death. When is Tax Due? The personal representative, special administrator, or trustee should file the estate tax forms. The forms are due 9 months after the date of death or when the Federal Estate Tax Return is required to be filed, as extended, whichever is later. However, regardless of when the return is filed, the tax is due 9 months after date of death. If the tax is not paid within 9 months of the decedent's death, interest is imposed at 1% per month from the date of death.

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