Your answer may vary. But it’s not because of the cold winters or the cast of “Jersey Shore”. Let me explain.
Many have read the news that the Estate Tax exemption for 2013 was raised to $5 million. This was due to the last minute fiscal cliff resolution passed at the end of last year. However, here’s some bad news: Twenty States and Washington DC still force residents to pay an estate or inheritance tax. Problem is in many cases they kick in well below the $5 million federal exemption. Here’s a great article and another breaking down the varying Exemptions and Tax Rates.
So which is the Worst? Well that depends. If you have a lower net worth, the fact that Ohio will only give you an exemption of $338,333 might give you a hands down winner. Considering studies saying the average net worth in America is $500k, you might give Ohio the prize for adding an Estate Tax for many of their citizens (and voters!!). But their tax is 7%, so if you have an estate of $500, your beneficiaries will be left with a tax bill of $11,316 courtesy of Ohio.
But New Jersey and Maryland won’t go down without a fight. Both states have an estate tax with an exemption of less than or equal to $1 million (NJ $675k and Maryland $1M). Only six other states and DC can claim that achievement. However what might give these two states the clear edge is the tax rate of 16% in both states. Only Washington State is higher with a 19% tax after a $2 million exemption. But that’s not all Eight States have an inheritance tax, Tennessee, Iowa, Pennsylvania, Kentucky, Nebraska, Indiana, and New Jersey and Maryland. These taxes have essentially no exemption and taxes range from 9.5% to 20%.
New Jersey and Maryland are the only states to have both an inheritance and estate tax. The inheritance tax is subtracted from the estate before calculating this tax. And both taxes are subtracted from the estate before factoring the Federal estate tax. So in NJ and MD, if you have an estate over 5mil your maximum effective tax rate would be 54.1% in NJ and 50.9% in MD (compared to 39.6% in OH). So if you have a $15M estate in NJ when you pass away, you beneficiaries would receive a combined state and federal tax bill of over $5.4M.
Grand Prize Ribbon goes to New Jersey for being the Worst Place to Die in 2013!