If you’re planning to set aside an inheritance for your loved ones, we recommend researching your state’s inheritance tax laws. As of March 2018, six states have an inheritance tax and twelve states and DC have an estate tax.
While estate taxes are usually only collected from a small percentage of extremely wealthy families, inheritance taxes are typically collected from anyone who receives an inheritance and resides in a tax with inheritance taxes.
In this guide we’ve outlined the six states that impose an inheritance tax, and their inheritance tax rates. We’ve also listed each state’s estate tax rates to help you calculate how much your heirs will owe based on how much you intend to leave them.
Quick Article Guide:
- Which States have an Inheritance Tax?
- Inheritance Tax Rates and Brackets in Iowa
- Inheritance Tax Rates and Brackets in Kentucky
- Inheritance Tax Rates and Changes in Maryland
- Inheritance Tax Rates and Changes in Nebraska
- Inheritance Tax Rates and Changes in New Jersey
- Inheritance Tax Rates and Changes in Pennsylvania
- We Can Help
Currently, there are six states with an inheritance tax. These states include: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Each state sets its own inheritance tax exemption, and inheritance tax rates, but these rates are subject to change at any time with changes to legislation.
The amount of the inheritance tax your loved ones will owe is dependent on your state’s exemption amount, and the amount of the inheritance you leave behind for them. Most states have a sliding scale which equates to higher tax brackets for larger inheritances, and only Nebraska and Kentucky offer an inheritance exemption of $10,000 and $500 respectively.
In the following sections we’ve further broken down each state’s inheritance tax laws and rates, as well as some proven strategies that will prevent your loved one’s from having to answer to your state’s tax board.
In Iowa, some family members are entirely exempt from any inheritance taxes. Also known as “Schedule A” beneficiaries, these family members include: surviving spouses, parents, grandparents, and great grandparents. Legally or biologically-related children including step-children, adopted children, grandchildren, and great grandchildren are also exempt from inheritance taxes in Iowa.
Most charitable, education, and religious organizations are also exempt for inheritance taxes in Iowa as well. The following table outlines the inheritance tax rates for schedule B through F beneficiaries:
Relation to Deceased: Beneficiary Schedule: Exemption Amount: Tax Rate:
Brother or sister (Including half-brothers and sisters), sons-in-law and daughters-in-law B $0 5 to 10%
Aunts, uncles, nieces, nephews, cousins, brother or sister-in-law, step-grandchildren, foster children, or any unrelated individual C $0 10 to 15%
Corporations, firms, social and fraternal organizations that do not qualify as educational, religious, or charitable D $0 15%
Foreign educational, religious, or charitable organizations E $500 10%
Unknown contingent heirs F $0 5%
In Kentucky, inheritance beneficiaries are classified into one of three categories: A, B, and C. As of June 30th, 1998, a surviving spouse, parent, child, grandchild, brother, sister, half-brother, and half-sister is classified as a Class A beneficiary, and is exempt from inheritance taxes.
Class B beneficiaries which include the deceased’s niece, nephew, half-niece, half-nephew, aunt, uncle, son-in-law, daughter-in-law, and great grandchildren are not exempt from inheritance taxes. If the amount of the inheritance exceeds $1,000, it will be subject to an inheritance tax rate of 4 to 16%. We’ve displayed a breakdown of the tax rates for Class B beneficiaries below:
Inheritance Tax Rates for Class B Beneficiaries
|Total Amount of Inheritance|
|$1,000 to $9,999||$10,000 to $19,999||$20,000 to $29,999||$30,000 to $44,999||$45,000 to $59,999||$60,000 to $99,999||$100,000 to $199,999||$200,000 or more|
|4% of amount over $1,000||$360 + 5% of amount over $10,000||$860 + 6% of amount over $20,000||$1,460 + 8% of amount over $30,000||$2,660 + 10% of amount over $45,000||$4,160 + 12% of amount over $60,000||$8,960 + 14% of amount over $100,000||$22,960 + 16% of amount over $200,000|
Class C beneficiaries are any beneficiary that is not included in Class A or B and any cousins of the deceased. These beneficiaries receive an exemption of $500, and any inheritance that exceeds this amount is taxed at a rate of 6 to 16%. We’ve further illustrated the tax rates for Class C beneficiaries in the table below.
Inheritance Tax Rates for Class C Beneficiaries
|Total Amount of Inheritance|
|$500 to $999||$1,000 to $9,999||$10,000 to $19,999||$20,000 to $29,999||$30,000 to $44,999||$45,000 to $59,999||$60,000 to $99,999||$100,000 to $199,999||$200,000 or more|
|6% of amount over $500||$30 + 6% of amount over $1,000||$570 + 8% of amount over $10,000||$1,370 + 10% of amount over $20,000||$2,370 + 12% of amount over $30,000||$4,170 + 14% of amount over $45,000||$6,270 + 16% of amount over $60,000||$12,670 + 16% of amount over $100,000||$28,670 + 16% of amount over $200,000|
To avoid inheritance taxes, you can also purchase a permanent life insurance policy with a fixed death benefit until the age of 100 or later. Any individual that is listed as your beneficiary will not be subject to inheritance taxes, even if they are not a member of Class A. The best type of coverage for leaving an inheritance is guaranteed universal life insurance because it offers affordable fixed rates until age 100 or later.
Maryland is currently the only state that imposes an estate tax and an inheritance tax. The different between the two is that an estate tax is charged against the entire estate, regardless of who the beneficiaries of the state are. An inheritance tax is only charged against the shares of certain beneficiaries of an estate.
Beneficiaries or property completely exempt from Maryland’s inheritance tax include:
- For decedents who pass away on or after July 1, 2000 – children or other lineal descendant, the spouse of a child or other lineal descendant, a spouse, parent, grandparent, step-child or step-parent, siblings, or a corporation only having certain of these people as stockholders
- For decedents who pass away on or after July 1, 2009 – a primary residence owned by domestic partners that was held in joint ownership at the time of the decedent’s death
If any other beneficiary receives property after the decedent has passed – including property passed to a domestic partner other than a jointly-owned primary residence – is contingent to Maryland’s inheritance tax. The current Maryland tax rate is 10%.
It is important to know that unlike other states, Maryland’s estate tax exemption amount is $4 million, as opposed to the $11.2 million federal amount. It is expected to match the federal amount in 2019.
These are exemptions from Nebraska’s inheritance tax:
- Surviving spouses and charities – fully exempt
- Immediate relatives (Class 1): parents, grandparents, siblings, children, or any other lineal descendant (including those legally adopted) – exemption of $40,000
- Remote relatives (Class 2): aunts, uncles, nieces, and nephews related to decedent by blood or legal adoption, other lineal descendants of the same, and the spouse/surviving spouse of any such persons – exemption of $15,000
- Any other transferees (Class 3) – exemption of $10,000
- Any money from the estate that immediate family members are entitled to, certain payments from employee benefit plans, and insurance policy proceeds that go to a named beneficiary (not the estate) – fully exempt
The following table outlines the inheritance tax rates for Nebraska beneficiaries:
Relation to Deceased: Beneficiary Class: Exemption Amount: Tax Rate:
Immediate relatives 1 $40,000 1%
Remote relatives 2 $15,000 13%
All other transferees 3 $10,000 18%
Like mentioned above, any proceeds from a life insurance policy are not taxed. For this reason, it would be very beneficial to have a policy in place to avoid Nebraska’s inheritance tax. We recommend getting a guaranteed universal life insurance policy – it offers affordable fixed rates until age 100 or later, and will allow your beneficiary to avoid inheritance taxes (regardless of which group he or she falls into).
In October 2016, Governor Christie signed new legislation into law that would repeal any existing estate tax laws by 2018. Despite repealing their estate tax laws, New Jersey will continue to collect taxes from anyone who receives an inheritance from one of their residents. Like other states that collect an inheritance tax, New Jersey groups its beneficiaries into classes.
Class “A” beneficiaries are exempt from inheritance taxes in the state of New Jersey. These beneficiaries include a surviving spouse, domestic partner, civil union partner, child, grandchild, great grandchild, parent, grandparent, great grandparent, step-child, adopted child, or a mutually acknowledged child.
In 1963, New Jersey eliminated their Class “B” schedule, but they continue to assign any beneficiary that does not belong in Class A to Class C, D, or E. We’ve broken down the beneficiaries assigned to each of these classes and their respective tax rates in the table below:
|Relation to Deceased:||Beneficiary Class:||Amount of Inheritance:||Tax Rate:|
|Brother, sister, son-in-law, and daughter-in-law||C||Up to $25,000||0%|
|Up to $1,075,000||11%|
|Any transferee, distributee, or beneficiary not classified as A, C, or E||D||First $700,000||15%|
|Charities, religious institutions, educational and medical institutions, the State of New Jersey or any political subdivisions of New Jersey||E||N/A||0%|
In New Jersey, any individual who receives an inheritance for less than $500, or the proceeds from a life insurance policy, is also exempt from inheritance taxes. For this reason, most financial advisers recommend buying life insurance to leave an inheritance to any individual or entity that does not belong to Class C or E.
Life insurance payouts are confidential, which prevents your surviving family members from seeing who you left your inheritance to. In addition, the payout from a life insurance policy is not subject to intervention from the courts, or any surviving family members.
Like New Jersey, Pennsylvania is an inheritance tax-only state. If you are a surviving spouse of the deceased in Pennsylvania, your tax rate is based on the date of the decedent. For deaths that occurred on or after January 1, 1995, transfers to the surviving spouse are completely exempt with a tax rate of 0%. In addition, if the death of a child 21-years-old or younger occurs on or after July 1, 2000, the estate transfers to the child’s natural parent, step-parent, or adoptive parent are completely exempt from the Pennsylvania inheritance tax.
Charitable organizations and government entities are also exempt from the inheritance tax, as well as working family farms (with a gross income of at least $2,000) and property owned jointly between a husband and wife.
All other beneficiaries fall into one of the a following classes: Class A, Class A1, and Class B.
Class A includes lineal descendants, meaning children, their descendants (whether or not they have been adopted by others) and step-descendants. In addition, Class A also includes parents and grandparents, the spouse of a child, or the surviving spouse if a child is deceased (as long as he or she has not remarried).
Class A1 includes brothers, half-brothers, sisters, half-sisters, and any person having at least one parent in common with the decedent (either by blood or adoption).
Class B includes all other beneficiaries.
The following table outlines the inheritance tax rates for Class A, A1, and B beneficiaries:
|Relation to Deceased:||Beneficiary Class:||Exemption Amount:||Tax Rate:|
|Descendants, step-descendants, parents, grandparents, spouse of a child, or surviving spouse of a deceased child||A||$3,500||4.5%|
|Brothers, half-brothers, sisters, half-sisters, or any person having at least 1 parent in common with decedent||A1||$0||12%|
|All other beneficiaries||B||$0||15%|
If your heir will owe inheritance taxes, these taxes are due within nine calendar months of your passing. If the inheritance tax is paid within three months of the date of death, Pennsylvania applies a 5% discount.
If the decedent had a life insurance contract, those payments are exempt from the Pennsylvania inheritance tax, whether they are paid to the estate or a beneficiary. Similar to Iowa, you can avoid creating an estate tax liability by purchasing a permanent life insurance policy. Your beneficiary will then not be subject to inheritance taxes in the state of Pennsylvania.
At JRC Insurance Group we represent over 45 top-rated insurers, and our agency is licensed to sell life insurance in all 50 states and DC. By asking you a few questions about your health and lifestyle, our expert agents will be able to instantly compare rates from dozens of highly-rated insurers, matching you with the best option available.
No matter what state you live in, we can help! Most importantly, our shopping services are free and there is no cost to apply for life insurance. We specialize with helping clients who are in less than perfect health, and we have thousands of affordable, permanent, life insurance options available.
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