Montana does not have an estate tax. Montanans may still have to pay the federal estate tax, though, if the value of their estate is high enough. This guide takes Big Sky Country residents through what they need to know about the estate tax and other taxes that may factor into the estate planning process. If you think you’d like a financial advisor to help you with estate planning, consider finding one using SmartAsset’s free financial advisor matching service.
Montana Estate Tax
Montana does not levy an estate tax. It is one of 38 states without an estate tax.
What Is the Estate Tax?
The estate tax applies to estates of people who have recently died. The estate tax applies before the assets in an estate are passed on to a person’s designated heirs. It is sometimes called the “death tax,” and it only applies to estates that reach a certain threshold. This threshold is legally determined by the state or other entity levying the tax.
The inheritance tax is different from the estate tax. Inheritance tax applies to inherited assets after distribution to beneficiaries.
Montana Inheritance and Gift Tax
Montana also has no inheritance tax. Be careful, though: You may owe inheritance taxes in another state if someone living in a state with an inheritance tax leaves you property or assets. In Kentucky, for instance, there is an inheritance tax law that applies to all property located in the state, even if the beneficiary lives in another state. Make sure to check local laws whenever you receive an inheritance from someone who lives in different state to avoid accidentally missing a tax bill.
Montana does not have a gift tax either. There is a $16,000 exemption per recipient each year for the federal gift tax in 2022, going up to $17,000 in 2023. If you give more than $17,000 to a single person in a year, though, you must report the gift to the IRS. The amount over the exemption counts towards your $12.92 million lifetime gift tax exemption and lowers your federal estate tax exemption.
Federal Estate Tax
Though Montana won’t tax your estate, the federal government may if it is worth enough. The exemption for the federal estate tax is $12.06 million in 2022 and $12.92 million in 2023. The federal exemption is portable, so a married couple who takes the right legal steps can protect up to $25.84 million of their estate when they both die.
Estates exceeding the exemption are taxed according to an ascending series of rates, which top out at 40%.
Here’s how it works: Consider an estate worth $13.74 million. Subtract the $12.92 million exemption, which leaves you with a taxable estate of $820,000. That puts you in the second-highest tax bracket. You’ll owe a base payment of $248,300 on the first $750,000. You also must pay a 39% tax on the $70,000 in the tax bracket, which totals $27,300. Add that to the base rate and you get a total estate tax burden of $275,600.
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 $12.92 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Montana Tax Picture
Montana is moderately tax-friendly for retirees. The state fully taxes both withdrawals from retirement accounts, including 401(k) plans, and income from public and private pensions. Montana taxes these forms of retirement income at its income tax rates, which range from 1.00% to 6.75%.
Montana only partially taxes Social Security benefits. All Social Security income is deductible for taxpayers with an adjusted gross income of less than $25,000 ($32,000 for joint filers). Half of Social Security income is deductible for taxpayers making more than $25,000 but less than $34,000 ($44,000 for joint followers). Taxpayers with an adjusted gross income above the second limit can deduct 15% of Social Security income.
Montana’s average effective property tax rate is 0.74%, which is on the low end compared to other states across the nation. Montana residents who are at least 62 years old and pay the property taxes on their home are eligible for a property tax credit. The maximum credit is $1,000, for those with a household income of less than $45,000.
Montana has no sales tax.
Estate Planning Tips
- If you think you need help with estate planning, don’t hesitate to ask for it. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- One common estate planning mistake is thinking you’re too young to start planning. Even if you have many years of life left, it can’t hurt to have a plan in case something tragic happens.
Photo credit: ©iStock.com/izusek, ©iStock.com/wellesenterprises