Which state has the hightest death tax? Thats right, I said Death Tax...

The answer……………

NEW JERSEY…(followed by Maryland)

Yes, the state most famous for it’s shoreline, as well as the characters from two television shows about the shore (see “Jersey Shore” and “Atlantic City”) does not just have the highest tax on real estate. It is also the highest when it comes to death taxes. It is no surprise that New Jersey also has the highest rate of emigration of all fifty states. People are leaving the state so fast that Governor Christi decided to give the wealthiest 2% a tax break in hopes that they would stay. 

But citizens of New Jersey may not be able to just cross the border. The neighboring states of Pennsylvania and Maryland also grab some hefty taxes upon death. Yet, it is not surprising that Florida, which invites the world of retirees to its beaches and sunshine, is not charging a death tax.

The key is to not focus solely on the federal estate tax. Watch out for state death taxes. And if you own property or a business in more than one state, consult with your estate planning adviser to ensure you establish domicile where you want. State tax residency rules are complex and like estate tax rules, they vary from one jurisdiction to another.

Specific Details on Death Taxes

Let’s look at some specifics on death taxes for a few minutes. There are currently three categories of death taxes:

1.     Federal: With the relatively generous $5 million federal estate tax exemption for 2011 and 2012, most people are free of any federal estate tax worries -- until at least 2013. 

2.     State Inheritance Tax: Twenty States have them. If you live in one of these places, your estate can be exempt from the federal estate tax but still be exposed to significant state death taxes. Indiana, Iowa, Kentucky, Maryland, New Jersey, Pennsylvania, and Tennessee all have high inheritance taxes with low exemptions. Indiana is the highest at 20%.

3.     State Estate Tax: Sixteen states and the District of Columbia have their own estate taxes. Like the federal estate tax, these state estate taxes are based on the entire value of your estate in excess of the applicable exemption. Exemptions vary from a low of $338,333 to a high of $5 million. 

a.     Three states have exemptions of less than $1 million. This means they start taxing the estate quickly. (Ohio at $338,333; New Jersey at $675,000; and Rhode Island at $850,000). 

b.    Six states have $1 million exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, and Oregon), and so does DC. 

c.     Three states have $2 million exemptions (Illinois, Vermont, and Washington). 

d.    Two states have $3.5 million exemptions (Connecticut and Delaware). 

e.      $5 million exemptions (Hawaii and North Carolina).

As you can see, Maryland and New Jersey charge both an estate tax and an inheritance tax. In Maryland, the inheritance tax exemption is $150 and the maximum tax rate is 10 percent (in addition to the 16 percent maximum estate tax rate). In New Jersey, the inheritance tax exemption is zero and the maximum tax rate is 16 percent (in addition to the 16 percent maximum estate tax rate).

States without Death Taxes

If you are not in New Jersey, Pennsylvania, Tennessee, Nebraska, Maryland, Kentucky, Iowa, Indiana, Connecticut, Delaware, DC, Hawaii, Illinois, Maine, Mass., Minn., NY, North Carolina, Ohio, or Oregon.