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Where can you live to lower your estate tax?

In retirement, you might move to a different state for a wide range of reasons, such as being close to your kids and grandkids, or for a warmer climate.

Another key thing to consider is the state estate tax.

The federal estate tax applies to all U.S. taxpayers, whether they live in the U.S. or abroad.

With the current federal estate tax annual exclusion set at $11.58 million, there are many taxpayers who wouldn’t owe an estate tax if they died in 2020. That exclusion is set to hit a number that affects more people again in 2026, when it reverts to the 2017 level of $5 million, adjusted for inflation.

State estate taxes range widely, and 12 states plus the District of Columbia have estate tax exclusion levels that are lower than the federal estate tax.

In Connecticut, Hawaii, Maryland, Maine, New York and the District of Columbia, your wealth at death will be taxed if it is greater than between $5 million and $6 million.

The states of Illinois and Vermont tax amounts that are greater than between $4 million and $5 million. In Minnesota, the state estate tax will be imposed for estates that are over $3 million. In the state of Washington, your estate will be taxed at amounts exceeding $2.193 million. Rhode Island taxes estates over $1.58 million in value, and both Massachusetts and Oregon impose an estate tax for amounts over $1 million.

The state estate tax rate typically ranges between 10% and 15%.

Another consideration on the tax front is whether a state has an inheritance tax. Such a tax exists in six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

Often, the tax is imposed if someone who is neither a spouse nor a blood relative inherits money, but the way it works depends on the state. The amount of the tax can be 15% or more.

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