Inheritance Tax: A Comprehensive Overview of the Six States That Impose It

Inheritance tax, a levy imposed on beneficiaries who inherit assets from a deceased individual, is a crucial consideration in estate planning. While there is no federal inheritance tax in the United States, six states – Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania – impose this tax. Understanding the intricacies of inheritance tax laws in these states is essential to ensure proper estate planning and minimize tax liabilities.

States That Impose Inheritance Tax

The following six states impose inheritance tax:

• Iowa
• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Who Pays Inheritance Tax?

Inheritance tax is generally due from beneficiaries who inherit property or assets from a deceased individual who was domiciled in one of the six states that impose the tax. In some cases, inheritance tax may also be due if the deceased individual owned property in one of these states, even if they were not domiciled there.

Exemptions and Deductions

Each state has its own rules regarding exemptions and deductions for inheritance tax. Generally, surviving spouses and certain close relatives, such as children and grandchildren, are exempt from inheritance tax. Additionally, certain types of property, such as life insurance proceeds and retirement accounts, may be exempt from inheritance tax.

Tax Rates and Filing Deadlines

Inheritance tax rates vary by state and are typically based on the relationship between the beneficiary and the deceased individual. Filing deadlines for inheritance tax returns also vary by state, but generally range from eight to nine months after the date of death.

Detailed Analysis of Each State’s Inheritance Tax Laws

Iowa

• Inheritance tax rates range from 5% to 15%, depending on the relationship between the beneficiary and the deceased individual.
• Surviving spouses, lineal ascendants (parents, grandparents, etc.), and lineal descendants (children, stepchildren, grandchildren, etc.) are exempt from inheritance tax.
• Inheritance tax returns are due within nine months of the date of death.

Kentucky

• Inheritance tax rates range from 4% to 16%, depending on the relationship between the beneficiary and the deceased individual.
• Surviving spouses, parents, children, stepchildren, grandchildren, brothers, sisters, half-brothers, and half-sisters are exempt from inheritance tax.
• Inheritance tax returns are due within 18 months of the date of death.

Maryland

• Inheritance tax rate is a flat 10% for all beneficiaries.
• Surviving spouses, children, grandchildren, stepchildren, parents, stepparents, grandparents, brothers, and sisters are exempt from inheritance tax.
• Inheritance tax returns are due within nine months of the date of death.

Nebraska

• Inheritance tax rates range from 1% to 18%, depending on the relationship between the beneficiary and the deceased individual.
• Surviving spouses, parents, siblings, and other close relatives are exempt from inheritance tax on the first $40,000 of inheritance.
• Inheritance tax returns are due within nine months of the date of death.

New Jersey

• Inheritance tax rates range from 11% to 16%, depending on the relationship between the beneficiary and the deceased individual.
• Surviving spouses, domestic partners, civil union partners, children (including adopted children), grandchildren, parents, grandparents, stepchildren, and mutually acknowledged children are exempt from inheritance tax.
• Inheritance tax returns are due within eight months of the date of death.

Pennsylvania

• Inheritance tax rates range from 4.5% to 15%, depending on the relationship between the beneficiary and the deceased individual.
• Surviving spouses and minor children (21 or younger) are exempt from inheritance tax.
• Inheritance tax returns are due within nine months of the date of death.

Inheritance tax is a complex issue that can have a significant impact on estate planning. By understanding the intricacies of inheritance tax laws in the six states that impose it, individuals can make informed decisions to minimize tax liabilities and ensure the smooth transfer of assets to their beneficiaries. It is advisable to consult with an estate planning attorney for personalized guidance based on your specific circumstances.