While federal estate tax exemptions have allowed a vast majority of wealthy individuals to avoid hefty estate taxes after the death of a loved one, families in some parts of the country are still subject to state taxation. 21 states, including Washington, have put separate levies on personal estates and inheritance. While the federal exemption allows for $5.25 million untaxed dollars, in most of these states, only $1 million is exempt. Any amount over the exempt limit is subject to taxation percentages. Therefore, in a state like this that charges at a percentage of 16%, a person who dies with a $5.25 million dollar estate will owe no federal taxes, but will owe the state $420,800.
Some other states use an inheritance tax system. Under this levy, states charge a percentage for assets left to nieces, nephews, and friends, but none for inheritance left to children and grandchildren. Under state and federal inheritance tax laws, bequests to spouses are tax-free.
In Washington State, the exemption amount is $2 million and the tax percentage is 19% for all assets over the maximum.
For wealthy families, state estate and inheritance taxes have been an especially difficult problem because they are constantly changing. The number of states that have the tax at all is continually changing, and the exemption amounts and percentage rates are in continual fluctuation. For these reasons it is important to understand the laws of the state in which you live, especially if you have an estate exceeding $1 million or intend to leave inheritance to friends or more distant relatives.