State Estate Taxes

Inheritance tax laws, like other tax laws, can be determined by the government within each jurisdiction. Although Federal inheritance tax laws apply to all inheritance across the country, each state may also impose a separate inheritance tax law. Although the Federal inheritance tax law is set to expire in 2010, there are still several states that impose a separate inheritance tax law.

It appears that the lack of a Federal inheritance tax law, sets the percentage of Federal tax on inheritance at zero. It is likely that the Federal government will act quickly and enact new inheritance tax rates and laws in the immediate future. In fact, it is likely that the law will apply even to those that may have been exempt from paying the tax, because the inheritance tax law will be retroactive. Each beneficiary must also pay a state inheritance tax if the inheritance tax laws in their state mandate it.

A little over one fifth of the states have an inheritance tax law. Many states had let their inheritance tax laws expire but some of those states have reenacted their laws. For example, Delaware allowed the inheritance tax to lapse, but the state's government enacted an inheritance law that will be in effect until 2013.

At that time, the state may again allow the inheritance tax law to expire, or they may choose to continue to impose the inheritance tax. In contrast, some states have lowered the burden to beneficiaries by raising the exemption limit. Several states have allowed beneficiaries to inherit more money without facing a tax based on inheritance tax laws. In addition, some states have allowed their inheritance tax law to expire and have failed to reenact those laws.

Beneficiaries in each state will likely be subject to differing state inheritance tax laws. Those laws may have differing maximum exemptions and may impose an inheritance tax at varying rates. In 2010, around nine state had a maximum exemption of $1,000,000. There are even a few states that allow beneficiaries to inherit up to $3,500,00 tax free.

Conversely, states like New Jersey only allow an inheritance tax exemption up to $675,00 dollars. Some states impose both an estate tax before the inheritance reaches the beneficiaries and an inheritance tax once the property is in ownership of the beneficiary. In Kentucky, both taxes are imposed by there are exemptions for immediate family members that inherit property.

Like other tax laws, inheritance tax laws may vary between the Federal government and each state's government. In theory, an individual could be exempt from one inheritance tax but be subject to the other. In some cases, beneficiaries must pay both a state and Federal tax on inheritance.

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