What is Probate?
Probate refers to a legal term that encompasses the process in which someone's will is reviewed and property or estate distributed according to the deceased individual's wishes. Part of the probate process refers to determining if the will is authentic and if the recommended proceedings and transfers are legal. Probate can also refer to dispersing a deceased person's property accurately and legally if the deceased does not have a will in place.
Usually, a person will be made the administrator of the will to handle the probate process. This person will collect assets and pay any outstanding amounts, fees, or liabilities. Usually, probate has several fees ranging from individual state processing fees, individual legal fees, transfer fees, or taxes. Two major taxes that makeup probate are inheritance tax and estate tax. Inheritance tax and estate tax vary by state and amount, so it is important to understand the legal restrictions and tax brackets in your own state.
What States Have an Inheritance Tax?
Inheritance tax is a fee that is levied on inherited property or assets after a person has passed away. Inheritance tax is not common in the United States. However, six different states enforce some sort of inheritance tax. In addition to legal probate fees and transfer fees, expect to pay inheritance tax in Iowa, Nebraska, Kentucky, Pennsylvania, New Jersey, and Maryland. These states all have a different tax percentage sliding scale which changes the amount of tax owed based on the amount of property or assets inherited.
Iowa passed a bill in 2021 that will phase out the state’s inheritance tax. Deaths occurring after January 1, 2025, will be completely exempt from this tax.
What States Have an Estate Tax?
Unlike an inheritance tax, an estate tax is levied on a person's assets after passing away. Usually, across the United States, the federal tax applies to over $11.7 million in assets. In 2022, this limit was raised to $12.06 million. Depending on the number and value of taxable assets, the estate tax ranges from 18% to 40%.
Not every state will have an estate tax, however. Only Washington, Oregon, Minnesota, Illinois, New York, Maine, Massachusetts, Rhode Island, Connecticut, Vermont, and the District of Columbia. has an estate tax different from the federal estate tax. Maryland also has an estate tax, making it the only state to have both an inheritance and an estate tax. If a state is not listed as having an estate tax, assume only the federal tax for estates and assets applies.