State-level estate or inheritance taxes can impact even modest estates in certain states — with thresholds far below the federal exemption. You can reduce or avoid these taxes through lifetime gifting, trusts, and strategic residency planning, but the right strategy depends on which state's laws apply to your estate.
What Are They?
- Estate Tax: Paid by the estate before distribution
- Inheritance Tax: Paid by the individual inheriting
States That Impose Taxes
Some states impose one or both taxes, often with thresholds far below the federal limit.
How to Reduce Exposure
1. Lifetime Gifting
Give assets away while you're alive to reduce your taxable estate.
2. Use Trusts
Certain trusts can reduce or remove assets from your taxable estate.
3. Change Your Residency
Some people relocate to states with no estate or inheritance tax.
4. Charitable Giving
Donations can reduce your estate’s value and support causes you care about.
5. Update Your Estate Plan
Ensure your documents are tailored to state-specific laws and thresholds.
Final Thoughts
Understanding your state’s tax laws is essential to preserving your legacy. Consult an estate planning attorney to develop the right strategy for your situation.