TOP VIEW Choosing where to die may seem like an exercise in morbidity, but a taxpayer’s final resting place affects how much inheritance his beneficiaries will receive. Twenty-three states and Washington, D.C., impose some form of estate tax, including 11 states that levy separate inheritance taxes. Today 27 states impose neither estate nor inheritance taxes, among them some of the most popular locations in the country.

Individuals who are determined to minimize all taxes on an estate have the option of establishing residency in one of the states that not only does not levy estate taxes, but also lavishes tax incentives on the affluent. When families factor in each state’s weather and overall quality of life, five states emerge as the best ones in which to die or inherit wealth. These include, in alphabetical order:

Arizona As with the other members of this quintet, taxpayers do not have to choose between tax-friendly legislators and good weather—they can enjoy both. The Grand Canyon State is one of nine states in which all marital property is considered community property. Thus, when one spouse dies, all marital assets are subject to a 100 percent step-up on a cost basis. This frees the surviving spouse from any capital gains taxes, and subsequent heirs pay their capital gains based on the newer cost basis, which is likely to be higher than the original, thus giving them a lower tax bill. (The other states that offer this include California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.)

In 2010, however, Arizona will have to capitulate a bit. "With the [federal] estate tax repeal, there is a new system that would limit the basis step-up," says John Vryhof, an estate lawyer with Snell & Wilmer in Phoenix. "So what Congress gave away on the one hand, they took back with the other."

California In addition to the allure of the beach, the mountains and wine country, Californians enjoy another community-property state with no death taxes. The state also offers one law that excludes real property transfers from parent to child or child to parent from reassessment, and another that extends the exclusion to transfers from grandparents to grandchildren. In short, a taxpayer can bequeath a primary residence that has risen dramatically in value to a child or grandchild without the state assessing the house at current market value. Moreover, an individual who wishes to reduce the size of his estate by gifting a house to a child or grandchild during his lifetime can remove a highly appreciated asset from his estate for federal tax purposes, yet minimize any federal gift taxes incurred. (California also has no state gift tax.)

Florida As long as Jeb Bush lives in the governor’s mansion, the Sunshine State will tolerate no taxes on estates or income. North Palm Beach accountant Jeff Azis says that about five of his 30 clients whose net worth exceeds $10 million have relocated to this tax haven in recent years.

"I have a client with a $25 million estate who recently moved from Connecticut to Florida to avoid the estate tax," Azis says. "With estate taxes in Connecticut ranging from 8 to 16 percent depending on the size of the estate, he would have owed $3.5 million in estate taxes to Connecticut. That’s on top of the $10 million in federal estate taxes."