State Transfer Taxes
In addition to federal transfer taxes, many states impose their own death taxes — either as estate taxes, inheritance taxes, or both. The landscape of state death taxes has changed dramatically since 2001, when the federal government eliminated the state death tax credit and replaced it with a deduction. This change removed a major incentive for states to maintain their own death tax systems, and many states repealed or restructured their taxes as a result.
Two Types of State Death Tax
The “Pickup Tax” — Historical Context
Prior to EGTRRA (2001), most states imposed what was called a “pickup tax” (also called a “sponge tax”) — a state estate tax equal to the maximum allowable credit for state death taxes under federal law. Because the state tax was offset by a dollar-for-dollar federal credit, the pickup tax cost the decedent’s estate nothing extra — it simply redirected a portion of the federal tax liability to the state treasury.
EGTRRA phased out the state death tax credit between 2002 and 2004, replacing it with a deduction. This eliminated the pickup tax mechanism. States that relied solely on the pickup tax effectively lost their estate taxes unless they enacted new independent legislation — which many did, establishing their own exemptions and rate schedules.
Current State Death Tax Landscape
As of 2024, the state death tax landscape is highly varied:
- About 12 states plus the District of Columbia impose a state estate tax, with exemptions ranging from approximately $1 million (Massachusetts, Oregon) to over $13 million in states that conform to the federal exemption
- Six states impose a state inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland imposes both an estate tax and an inheritance tax.
- Surviving spouses are exempt from inheritance taxes in all states that impose them; children are typically exempt or taxed at very low rates
- The remaining states impose no state-level death tax of any kind
Inheritance Tax — Typical Rate Structure
In states with inheritance taxes, rates are generally tiered by the beneficiary’s relationship to the decedent:
| Beneficiary Class | Typical Treatment |
|---|---|
| Surviving spouse | Fully exempt in all states with inheritance taxes |
| Children & grandchildren | Often exempt or taxed at low rates (0–5%) |
| Siblings | Taxed at moderate rates (5–15%); often with a small exemption |
| Nieces, nephews, other relatives | Higher rates (10–18%); limited exemptions |
| Non-relatives | Highest rates (15–18%); minimal or no exemptions |
Florida — No State Death Tax
Florida imposes no state estate tax, no inheritance tax, and no state gift tax. Florida repealed its estate tax in 2004 when the federal state death tax credit was eliminated. Florida’s constitution now prohibits the legislature from imposing an estate tax or inheritance tax without a constitutional amendment approved by voters.
For Florida residents, state-level death taxes are not a planning concern. However, agents should be aware that:
• Clients who own real property in other states may be subject to those states’ death taxes on the out-of-state real property, regardless of Florida domicile.
• Clients who recently moved to Florida from a high-tax state must establish clear Florida domicile — updating driver’s license, voter registration, vehicle registration, and filing a Declaration of Domicile — to avoid former-state death tax claims.
• Intangible personal property (stocks, bonds, bank accounts) is generally taxed by the state of the decedent’s domicile — so Florida domicile protects these assets from other states’ taxes.
Planning Considerations
State death taxes can significantly affect the overall tax burden on an estate, particularly for clients with moderate-sized estates that fall below the federal exemption but above a state’s lower threshold. Key planning considerations include:
- Domicile — establishing clear residency in a no-tax state like Florida can eliminate state death taxes on intangible property; requires careful documentation
- Out-of-state real property — real estate is taxed by the state where it is located; holding it in an LLC or trust may or may not help depending on state law
- State-specific planning — clients with assets in multiple states should work with estate planning attorneys familiar with each state’s laws
- Beneficiary relationships — in states with inheritance taxes, the relationship between the decedent and beneficiaries significantly affects the tax burden; planning for non-family beneficiaries requires extra attention