During the estate planning process it is important to evaluate the net worth of your estate to determine if your estate may owe federal estate taxes after you pass away. In 2010, there is no federal estate tax, but in 2011 it is expected to return at the exemption level of one million dollars. While evaluating your federal tax liability, you must also determine if you will owe state taxes in each state where you own property.

State Estate Taxes

Currently, Mississippi has not separate state estate or inheritance tax, but instead relies on the federal tax deduction allowed for state estate taxes, sometimes called a “piggyback” tax. Under the prior tax law of most of the past decade, this meant that Mississippi had no estate tax, but with the re-emergence of the pre-2001 law, Mississippi will again pick up a share of the federal estate tax. How much you owe depends upon the worth of your estate.

If you own property in another state, it may be wise to see what if any taxes you may owe in that state. There are now fifteen states and the District of Columbia that collect an estate tax. That number has dropped from eighteen states and the District of Columbia in 2009. This change comes as two states have abolished estate taxes and two more have repealed them in accordance with the federal estate tax repeal this year. Hawaii is the one state that collects this year and did not last year.

Inheritance Taxes

Inheritance taxes are different than federal and state estate taxes. These taxes are based upon who inherits your belongings rather than the worth of your entire estate. There are only seven states that currently collect inheritance taxes. Mississippi is not one of those states.

In all seven states where inheritance taxes are owed, the decedent’s spouse is exempt. Beyond this common provision, each state has its own rules regarding descendants as heirs, life partners as heirs, whether life insurance policies are included and what tax rate is assessed.

Tags: Estate Planning, estate taxes