After the One Big Beautiful Bill Act went through, the anticipated sunset didn’t happen. The federal lifetime gift and estate tax exemption baseline settled at $15 million for individuals and $30 million for married couples.
Tax experts at The Wall Street Journal and Forbes, however, warn that it may be a red herring. While the federal government has raised the ceiling
Currently, 12 states and the District of Columbia levy a state estate tax, including Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Most states only charge estate taxes above a certain threshold. For example, if the state estate-tax threshold is $2 million and your estate is valued at $2.5 million, $500,000 of it would be taxed.
Other states have quirks that can dramatically increase estate taxes. Here’s a closer look at what that means and how to plan your estate to minimize estate taxes.
Be careful in states with low estate-tax thresholds
You need to consider potential estate taxes if you own a paid-off home. A home worth $500,000, plus what is left in a retirement account, could push an estate over the $1-million mark.
This could be a concern if you live in a state with a low estate-tax threshold like:
- Massachusetts ($2-million estate-tax threshold)
- Minnesota ($3-million estate-tax threshold)
- Washington ($3-million estate-tax threshold)
It’s prudent to be cautious, especially if you live in either of the two so-called “cliff states,” Illinois and New York. The entire estate could be taxed if you cross their respective estate-tax threshold by even one dollar.
Illinois has a $4-million threshold. Above that, Illinois levies a 0.8% to 16% progressive tax on the entire estate.
New York has a $7,717,500 threshold. Above that, New York State levies a progressive tax of 3.06% to 16%. But if an estate’s value hits 105% or more of the state threshold, taxes apply to the entire estate. It also has a danger zone, ranging between $7,350,000 and $7,717,500. A phase-in credit applies when the taxes are calculated.
How to limit the impact of estate taxes
The most effective way to reduce your estate tax burden is to start planning now. Here are several strategies to consider:
Set up a trust
Trusts are one of the most powerful tools for reducing estate taxes, though they come in different forms depending on your goals.
