What If An Heir Lives In A Different State Than Where The Estate Is Being Settled?

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:

STATEInheritance TaxEstate 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
Pennsylvaniaup 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.