The federal estate tax is all but dead for most Americans. With its inflation-adjusted exemption at $5.25 million per taxpayer for a combined $10.5 million for married taxpayers, the American Taxpayer Relief Act of 2012 has slain the beast ... for now anyway.
A recent Wall Street Journal editorial, titled “The Die Harder States” reviews the current state of the estate tax – both at the federal and state levels – as well as the current state of our problems with it.
The state level estate tax is not a problem for most states in the union, to include Kansas and Missouri. Nevertheless, it is a problem worth understanding. This is certainly true if your retirement plans might involve one of those states where the estate tax still has teeth.
As noted in the editorial, 18 states (made 19 by the District of Columbia) exact some form of estate tax, sometimes in conjunction with their own form on inheritance and/or gift tax. Each jurisdiction does so to varying degrees. Most of the taxing states apply their estate tax as under the former federal estate tax.
Given that the federal tax has been tamed of late, the state estate taxes pose a potential trap for unwitting estate planners whether in Overland Park or elsewhere.
Granted, you may still “vote with your feet” when it comes to state laws (i.e., move). Accordingly, if you are looking to cut your overall estate taxation, then evaluate the laws of your state of residency and those of any potential states to which you may relocate in the future.
When "state shopping” for tax avoidance, remember the three rules every realtor knows: location, location, location.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.For more information about estate planning and to download free tools to help you organize your estate, visit my estate planning website.
Reference: The Wall Street Journal (August 20, 2013) “The Die Harder States”