Don’t Forget State Estate Taxes
Don’t forget your state of residence and state estate tax changes when planning your Estate. Many differences between states require that you carefully review your estate and include state rules into your financial plan! Even when you determine that you are exempt from federal taxes you may still have unexpected significant estate taxes at the state level. Larger estates are more likely to have both but you’d be surprised that in some states how smaller estates may also qualified.
Nearly half of U.S. states impose an estate or inheritance tax regardless of whether the resident’s estate also owes federal estate taxes. Two states, New Jersey and Maryland, levy both estate and inheritance taxes!
Florida, Nevada, and Alaska are among states generally thought to be attractive place to retire, not only when you are living — because there is no income tax — but also when you die. Neither estate nor inheritance taxes are charged in these states.
Many estates owe taxes to multiple states because the deceased person owned a vacation home or other tangible property such as a boat outside of the state they lived in when they died. Intangible property, such as stocks and money in bank accounts, is taxed in the state the individual legally resided in at death, regardless of where the investments are physically located.
In California, we’ve phased out Estate taxes after 2005 and there is no inheritance tax. Executors of estates of persons who died on or after Jan. 1, 2005, are no longer required to file a California estate tax return.
Imposing just an estate tax, with exemption amounts ranging from $338,333 to $5 million, are Washington, Oregon, Minnesota, Ohio, North Carolina, Hawaii, New York, Delaware, Connecticut, Massachusetts, Vermont, Maine, Rhode Island, Illinois and the District of Columbia. Rates vary from 7% in Ohio to 19% in D.C.
Six states collect just an inheritance tax, which is paid by the heirs and not the estate, and generally increases for beneficiaries the more removed they are from being close family members. Rates range from 9.5% to 20% in Pennsylvania, Tennessee, Kentucky, Indiana, Iowa and Nebraska.
New Jersey begins taxing estates at $675,000 and has a maximum rate of 16%, in addition to a maximum 16% inheritance tax on beneficiaries who are not spouses or parents, or children or other lineal descendants. New York has a $1 million exemption for its estate tax, which also tops out at 16%.
Of course, states are always changing tax rules. So be mindful and consult a tax attorney before filing.
Edi Alvarez, CFP®
BS, BEd, MS