State Estate Taxes

I'm putting all my money in taxes--it's the only thing that's sure to go up! - Anonymous Investor.

This may come as a shock, but most people pay more in state and local taxes than they do in federal taxes. If you factor in the various sales and use taxes, income taxes, property taxes, excise taxes (e.g. liquor, cigarettes, gasoline) and other state and local taxes imposed on the average taxpayer, you'll find that over half the money that you pay to the government never leaves your state. It is no wonder, then, that states want their piece of the pie one more time after you die. After all, if the federal government does it, why can't they?

State death taxes come in two basic forms:

• inheritance taxes
• estate taxes

Estate taxes as the state level generally operate in the same manner as those at the federal level. The tax liability is imposed on the value of the estate and it is the estate that is liable for the payment of tax prior to the transfer of property to the beneficiaries. An inheritance tax is levied on the right to receive property by inheritance. Beneficiaries are divided into classes according to the closeness or remoteness of their relationship to the decedent, with different exemptions and tax rates applied to each class. Generally, the closer the relationship, the greater the exemption and the lower the tax.