Do some states impose estate taxes?

Yes. Even if your estate isn't big enough to owe federal estate tax, the state may still take a bite.

Estate tax. Until recently, most states didn't impose their own estate tax; instead, they took a share of the federal estate tax paid by large estates. (This is called a "pick-up" or "sop" tax.) But states no longer get a share of federal estate tax. To get back some of what they're losing, some states are collecting tax from estates that aren't big enough to owe any federal tax. So far, almost half the states have changed their laws so they can keep collecting estate tax.

For example, in New Jersey, Rhode Island, and Wisconsin, estates worth more than $675,000 may owe state estate tax. Property left to a surviving spouse, however, is exempt from state estate tax, just as it is exempt from federal estate tax.

Inheritance tax. Some other states impose a separate tax on a deceased person's property, called an inheritance tax. The tax rate depends on who inherits the property; usually, spouses and other close relatives pay nothing or a low rate.

Can I avoid paying state estate or inheritance taxes?

If your state imposes estate or inheritance taxes, there probably isn't much you can do. But if you live in two states -- winter here, summer there -- your inheritors may save money if you can make your legal residence in a state that doesn't impose these taxes.