New England States with Daunting “Death Taxes”

 

There’s generally no need to fear the U.S. federal “death taxes.” In 2023, the federal estate tax only comes into play for estates valued at $12.92 million or more, or $24.12 million for married couples, affecting just a minor portion of the U.S. population who reach this wealth level. Furthermore, there’s no federal inheritance tax that might unsettle your beneficiaries. (The estate tax is levied on the total value of the estate and paid by the estate itself, while inheritance tax is paid by the individual beneficiary on the assets they receive.)

However, if your assets fall under the federal estate tax threshold, don’t relax just yet. There might be a state tax bill waiting in the wings. While many states have decreased or abolished their death taxes in the last ten or so years to prevent affluent retirees from relocating to states with lower taxes, 12 states (along with the District of Columbia) continue to enforce an estate tax, five of these being in the New England region. If you’re unaware of the implications of death taxes and reside in one of the five New England states mentioned below, it’s crucial to pay attention: your beneficiaries could end up dealing with a state tax collector.

 

 

Maine

• Estate tax: Yes
• Level of estate tax exemption: $6.41 million
• Estate tax rates: 8-12%
• Inheritance tax: No

The estate tax in the Pine Tree State is less daunting, given that it only affects estates valued at $6.41 million or more for the year 2023 (this exemption limit is adjusted annually to account for inflation). As the majority of estates don’t reach this worth, the tax in Maine does not capture many estates.

Furthermore, the estate tax rates in Maine are relatively moderate. The highest rate is only 12%, matching Connecticut for the nation’s lowest peak rate.

 

 

Massachusetts

• Estate tax: Yes
• Level of estate tax exemption: $1 million
• Estate tax rates: 0.8-16%
• Inheritance tax: No

The Bay State is one of just two states where the exemption limit remains at $1 million, making it less accommodating to estates compared to many other states, including nearby northeastern states that also feature on our list, like Rhode Island and Connecticut.

However, it does provide an unlimited marital deduction for property bequeathed to a surviving spouse and an unrestricted charitable deduction for property donated to a recognized charity.

 

 

Vermont

• Estate tax: Yes
• Level of estate tax exemption: $5 million
• Estate tax rate: 16% (flat rate)
• Inheritance tax: No

In the Green Mountain State, Vermont, an estate tax applies with an exemption threshold of $5 million. The state levies a consistent estate tax rate of 16%.

 

 

Connecticut

• Estate tax: Yes
• Level of estate tax exemption: $12.92 million
• Estate tax rates: 11.6% or 12%
• Inheritance tax: No

For 2023, the estate tax exemption in the Constitution State aligns with the federal estate tax exemption at $12.92 million, with a maximum tax obligation capped at $15 million.

Connecticut stands unique as the only state imposing a gift tax on assets transferred while one is still living. Should you make any taxable gifts within the year, you are obligated under state law to report them by filing a Connecticut estate and gift tax return. However, any taxes owed in 2023 will only apply if the total value of gifts given since 2005 surpasses $12.92 million.

Both estate and gift taxes in the state are levied at a uniform rate of 12%.

 

 

Rhode Island

• Estate tax: Yes
• Level of estate tax exemption: $1,733,264
• Estate tax rates: 0.8-16%
• Inheritance tax: No

While the Ocean State annually revises its estate tax exemption to account for inflation, it retains a notably low benchmark. With an exemption amount of merely $1,733,264 for 2023, Rhode Island is among the only three states in the country with an exemption under $2 million. Its tax rates vary between 0.8% and 16%.