How To Determine if Your State Has a Death Tax

It is generally easy to determine if there is a death tax in your state, the challenge may be figuring out whether it applies to your situation.

The easiest place to start is on your state's Web site. Go to the department of taxation, sometimes called department of revenue. This is the department in charge of administering death taxes. Look under the link for individual taxes.

There are a variety of titles that a state death tax can be classified under. Some of the possible types of death taxes are called succession taxes, inheritance taxes or estate taxes.

Many death taxes are imposed at different rates for different classes of people. Generally there is no death tax on transfers between spouses. Many transfers to children are taxed at a rate different than those to more distant relatives or unrelated parties.

Once you have determined if your state has a death tax, you then have to determine whether the tax will apply to your situation. States that have inheritance or succession taxes generally apply to any property that is transferred due to death. States that have estate taxes may have a certain amount of exemption, functioning similarly to the federal estate tax. It is extremely important to understand how the exemptions work. If you have one dollar too much in certain states, it can cost a huge amount in taxes.

To make the scenario even more confusing, some states have death taxes that work as a complement to the federal estate tax. Death taxes in other states operate independently of any federal estate tax determinations.

The best advice to follow is to do some leg work on your own, but then consult a professional. There are people who devote their careers to understanding the intricacies of death taxes at both the state and federal level. If you have an attorney that you feel comfortable with, discuss the matter with them, if it isn't their specialty, they can refer you. You can also consult your accountant or your financial adviser. All of them should have information that is specific to your state and they have insight to your personal situation, so they can offer pointed advice.

The best avoidance or reduction of death taxes is planning in advance.


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