Alaska does not levy an estate tax, but residents of The Last Frontier with especially large estates may still be subject to the federal estate tax. Use this guide to find out what you need to know if you’re an Alaskan planning your estate. If you’re finding estate planning — or financial and retirement planning more generally — overwhelming, consider finding a financial advisor to help you. SmartAsset’s free financial advisor matching service makes it easier to find an advisor in your area.
Alaska Estate Tax
There is no estate tax in Alaska. It is one of 38 states that does not have an estate tax.
What Is the Estate Tax?
You may hear it referred to as the “death tax,” but estate tax is the official nomenclature. The estate tax is a tax applied to a recently deceased person’s estate. It is always applied to the estate before the money or assets pass on to the heirs, and it only applies to estates that reach a certain threshold.
Don’t confuse the estate tax with the inheritance tax. The inheritance tax applies to the money inherited by a person’s heirs after they have received it.
Alaska Inheritance and Gift Tax
Alaska also has no inheritance tax. Other states’ inheritance laws may apply to you, though, if someone who lived in that state leaves you something in their will. In Kentucky, for instance, any property that a resident of the state passes down is subject to inheritance tax, even if the beneficiary lives out of state. If you receive property from someone who lives in a different state, make sure to check the laws of that state.
Alaska also has no gift tax. The federal gift tax has an exemption of $15,000 per gift recipient per year. If you give more than $15,000 to a single person in a year, then that counts against your lifetime gift tax exemption of $11.18 million and reduces your federal estate tax exemption.
Federal Estate Tax
Alaska won’t collect an estate tax from you, no matter the size of your estate. If you have sufficient assets, though, the federal estate tax may apply. There is an $11.18 million exemption for the federal estate tax, a number that increased when the new tax law was signed in 2018. The exemption is portable for married couples, meaning that when both spouses die, up to $22.36 million can be protected with the right legal maneuvers.
If your estate exceeds that amount, you’ll have to pay estate tax. The top rate is 40%, and a full table of rates is available below.
Here’s how to calculate your estate tax burden. Let’s say you are single and have an estate worth $16 million. First, subtract the $11.18 million exemption, leaving a taxable estate of $4.82 million. According to the chart, you are in the highest tax bracket. You owe $345,800 on the first $1 million and must pay 40% on the remaining $3.82 million. That comes out to a total of $1,528,000. That figure plus the base payment of $345,800 makes for a total tax burden of $1,873,800.
|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 Alaska Tax Picture
Alaska is very tax-friendly for retirees. There is no state income tax. Alaska also does not tax Social Security, pensions and withdrawals from retirement accounts, like 401(k) plans or IRAs.
There is not state sales tax in Alaska either. Local municipalities can levy a sales tax, though, which ranges from 0% to 7% but averages around 1.76%. The average property tax in Alaska is 1.19%. This is higher than the national average, but many cities exempt seniors from property tax on some or all of the value of their homes.
Though taxes are low, the cost of living in Alaska is high. The cost utilities is especially high, as you have to survive long, dark and cold winters. However, one perk of the state is that Alaska actually pays you to live there. All residents receive the annual Permanent Fund Dividend, which can total more than $1,000.
Estate Planning Tips
- When it comes time to plan your estate, you may find yourself more lost than you’d like to admit. That is when finding a financial advisor can be a very good idea. SmartAsset’s free financial advisor matching service makes it easier to find an advisor who meets your needs. You answer a few simple questions about your finances. Then we match you with up to three advisors in your area, all fully vetted and free of disclosures. You then talk to each of them and see if one of them is someone you want to work with.
- Writing a will is important. It’s just as important to update the will. Make updates to your will when you experience life changes, like having children or getting divorced. A
common will-writing mistake is to not take these changes into account, which can create a mess for your family to sort out after you die.
Photo credit: ©iStock.com/vintagepix, ©iStock.com/NicoElNino