What if the person who died and left you an inheritance lived in a different state than you. Does this affect your inheritance? If so, how?
The two main things to consider are taxes and real estate, and the two are intermingled.
There are two types of taxes that will affect your inheritance: estate tax and inheritance tax. Estate tax is a tax on the value of someone’s estate after they die. This tax is paid by the estate before any inheritances are passed to beneficiaries. Inheritance tax is a tax on each individual inheritance. Estate tax is like taking an inch off a pie, all the way around the circumference. Inheritance tax is like taking a bit from each individual piece. Federal estate tax applies to everyone but is only levied on estates of more than $12.06 million. There is no federal inheritance tax.
There are 12 states/regions that tax estates: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and Washington, D.C. If the decedent lived in these places, the tax will be levied, regardless of where the beneficiaries live. See the table below for the tax amount in each state.
Six states levy inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Inheritance tax usually applies if the decedent lived in one of those six states or if the property being passed on is in one of those states, regardless of where the beneficiary lives. Also, spouses and certain other heirs are typically excluded by states from paying inheritance taxes.
The bottom line is, it doesn’t really matter where the beneficiary lives but rather where the deceased lived. Here’s a complete list of states that tax inheritances and how:
|STATE||Inheritance Tax||Estate Tax|
|Connecticut||11.6% – 12% on estates above $9.1 million|
|District of Columbia||11.2% – 16% on estates above $4.3 million|
|Hawaii||10% – 20% on estates above $5.5 million|
|Illinois||0.8% – 16% on estates above $4 million|
|Iowa||up to 9%|
|Kentucky||up to 16%|
|Maine||8% – 12% on estates above $5.8 million|
|Maryland||up to 10%||0.8% – 16% on estates above $5 million;|
|Massachusetts||0.8% – 16% on estates above $1 million|
|Minnesota||13% – 16% on estates above $3 million|
|Nebraska||up to 18%|
|New Jersey||up to 16%|
|New York||3.06% – 16% for estates above $6.1 million|
|Oregon||10% – 16% on estates above $1 million|
|Pennsylvania||up to 15%|
|Rhode Island||0.8% – 16% on estates above $1.7 million|
|Vermont||16% on estates above $5 million|
|Washington||10% – 20% on estates above $2.2 million|
The tax amounts and exemptions depend on several factors that vary by each state. Go here for a complete state by state description.
If the decedent lived in one state but owned real estate in a different state, this key legal principle applies: real estate is always governed by the law of the state in which it’s situated, not the law of the state where the owner lives. So, situations like this may require a secondary (called ancillary) probate case opened in the state where the real estate asset is located.