One of my mentors liked to say there are only two guarantees in life: death and taxes.
As an estate planner, clients often tell me they don’t want all or most of their property to go to taxes when they die. Taxes come in many flavors. For purposes of this discussion, this article is limited to a simple discussion of state and federal estate tax and, to some degree, income tax.
Eighteen states have some form of an inheritance tax which is paid by beneficiaries on amounts they inherit, or an estate tax which is paid by the estate on the value of the property in the estate, or both. The federal government imposes an estate tax on the gross value of the property in an estate, but it does not charge an inheritance tax on beneficiaries.
If you die in Montana, with property only located in Montana, your family will not pay estate or inheritance tax to the state of Montana. Montana abolished the inheritance tax effective for any deaths after January 1, 2001, and abolished the estate tax for deaths after January 1, 2005. If you die in another state, or die in Montana but have property in another state, you’ll want to consult with an attorney to determine whether state-level inheritance or estate tax is owed in that state.
Generally, your estate will pay a federal estate tax to the IRS if the value of your estate when you die is more than $12,060,000 (for married couples this amount may be increased through portability and could be as much as $12,120,000). This $12 million exemption amount increases every year, and is set to sunset or expire on December 31, 2025 (at which point it will drop to approximately $6,000,000) unless Congress takes other action. The value of your estate is the fair market value of any assets you own at your death (real property, investments, collectibles, cash, etc.), less certain deductions allowed under the IRS rules. If you die with less than $12,060,000 in assets, or if the various deductions allowed are enough to reduce the value of your estate to less than $12,060,000, then no federal estate tax will be due at your death.
In summary, if you are a Montana resident who dies with Montana property: your beneficiaries will inherit the property tax-free, your estate will not pay Montana estate tax, but your estate may have to pay federal estate tax.
Finally, your estate may still have to pay income tax at both the state and federal level just like individuals do if the estate receives income after your death (ex: rental income, interest on investments) above the state and federal filing thresholds for reporting such income.
This is a simplified explanation of death and taxes, and you should consult with an experienced estate planning attorney for more information about whether your estate might owe taxes at your death.