There is no estate tax in Louisiana, but residents of the Bayou State may still have to pay the federal estate tax if their estate is worth enough. This guide takes Louisianans through what they need to know about the estate tax as they begin to think about estate planning. Planning ahead will help you make sure your assets are protected and your affairs are in order for when you eventually pass away. Estate planning isn’t always simple, though, so you may want to enlist a financial advisor to help you. SmartAsset can simplify your search with our free financial advisor matching service.
Louisiana Estate Tax
There is no estate tax in Louisiana. It is one of 38 states that does not have an estate tax.
What Is the Estate Tax?
Sometimes referred to as the “death tax,” the estate tax applies to an estate after a person has died but before any money or assets in the estate are passed on to the decedent’s designated heirs. Only estates that surpass a legally determined monetary threshold are subject to the estate tax.
Don’t confuse estate tax with inheritance tax. Some states levy an inheritance tax on money or assets after they are passed on to a person’s heirs. While the estate is responsible for paying estate taxes, beneficiaries must pay inheritance tax.
Louisiana Inheritance and Gift Tax
Louisiana does not have an inheritance tax. Inheritance tax laws from other states could in theory apply to you if you inherit property or assets from someone who lived in a state that has an inheritance tax. For instance, Kentucky’s inheritance tax applies to any property in the state, even if the inheritor lives out of state. If you inherit property from someone living in another state, check local laws. It’s always better to know about your tax burden than to be surprised by it.
There is no gift tax in Louisiana either. The federal gift tax exemption is $15,000 per year for each gift recipient. If you give more than $15,000 to any one person in a calendar year, you’ll need to report that to the IRS. The excess counts against your $11.18 million lifetime gift tax exemption and lowers your federal estate tax exemption.
Federal Estate Tax
Though Louisiana won’t be charging you any estate tax, the federal government may. The federal estate tax exemption is $11.18 million, a figure that changed in 2017 when the government passed the new tax plan. The exemption is portable for married couples. This means a couple can protect up to $22.36 million when both spouses die.
Estates that exceed the exemption must pay estate tax. The federal estate tax is progressive, with a top rate of 40%.
Here’s how it works: Consider an estate worth $15 million. Once you subtract the exemption of $11.18 million, you’re left with a taxable estate of $3.82 million, which puts the estate in the top tax bracket. The base payment on the first $1 million is $345,800. The 40% marginal rate on the remaining $2.82 million comes out to $1.128 million. Add the base payment to that figure, and you’ll get the total estate tax burden of $1,473,800.
FEDERAL ESTATE TAX RATES Taxable Estate* Base Taxes Paid Marginal Rate Rate Threshold** $1 – $10,000 $0 18% $1 $10,000 – $20,000 $1,800 20% $10,000 $20,000 – $40,000 $3,800 22% $20,000 $40,000 – $60,000 $8,200 24% $40,000 $60,000 – $80,000 $13,000 26% $60,000 $80,000 – $100,000 $18,200 28% $80,000 $100,000 – $150,000 $23,800 30% $100,000 $150,000 – $250,000 $38,800 32% $150,000 $250,000 – $500,000 $70,800 34% $250,000 $500,000 – $750,000 $155,800 37% $500,000 $750,000 – $1 million $248,300 39% $750,000 Over $1 million $345,800 40% $1 million
*The taxable estate is the total above the federal exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Louisiana Tax Picture
Louisiana is fairly tax-friendly for retirees. The state does not tax Social Security benefits or public pension income. It partially taxes income from private pensions and withdrawals from retirement accounts like 401(k) plans. Retirees get a $6,000 annual exemption on these sources of retirement income. The state taxes any retirement income above $6,000. The income tax in Louisiana is progressive, and rates range from 2% to 6%.
Louisiana has the third lowest property tax rates in the nation. The average effective rate is just 0.51%. There is also the Louisiana homestead exemption for anyone who owns and occupies their home. This exempts the first $75,000 in home value or $7,500 in assessed value from property taxes. Seniors age 65 and older are also eligible for the senior citizens assessment freeze if their total household income is $71,491 or less. Though the freeze does not impact tax rates, it does prevent property’s assessed value from increasing.
Sales tax in Louisiana runs high. The statewide rate is 5%, which is on the lower end. City and country rates, however, also average nearly 5%, resulting in an average total rate of around 9.90%.
Estate Planning Tips
- Planning an estate can take a good amount of time and energy. It may make sense to find someone to help you, and SmartAsset can simplify your search with our free financial advisor matching service. You answer a few questions about your financial life and goals, and we match you with up to three financial advisors in your area. We fully vet all of our advisors, and they are all free of disclosures. You can talk to each advisor and see if any of them seems like someone you’d want to work with.
- Don’t make the common estate planning mistake of thinking you’re too young to start planning your estate. You’re likely many years away from implementing your plan. However, it’s always better to have an estate plan ready than to leave your family surprised and ill-prepared if you died unexpectedly.
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