For most estates, the estate tax is not an issue.
You have worked hard.
You have earned and saved to take care of yourself in retirement and provide something of your life's work to your family when you pass away.
The last thing you want is a hefty tax taking a chunk out of what you leave behind.
Unfortunately, some state impose their own estate taxes and even inheritances taxes independent of the federal estate tax.
Do not panic, there may be some good news should you die a resident of such a state.
According to a recent Fox Business article titled “Why More States Are Killing Death Taxes,” many states are modifying their tax laws regarding estate and inheritance taxes.
Specifically, many states are raising their tax exemption threshold or eliminating the taxes altogether.
There are a few reasons.
- States are competing to attract and keep wealthy taxpayers.
- State estate taxes stand out more because the federal tax exemption now stands at $5 million (actually $5.49 million for 2017, as it is inflation-adjusted).
There are a few states who still have an estate tax for estates valued at $1 million or lower.
Oregon and Massachusetts.
There were nine of these states in 2009.
Neither of these states currently adjusts for inflation either.
Will they change their tax in the near future?
Massachusetts seems more open to the idea.
In fact, lawmakers are considering setting their state exemption to half of the federal exemption level.
Another option being considered is to exclude the value of a home from the estate valuation.
What about Oregon?
These lawmakers seem to be against a change and have rejected such legislative efforts.
However, the estate tax is not the only death tax to consider.
Many states have inheritance taxes.
What is an inheritance tax?
An inheritance tax is paid by the heir who inherits the assets.
Usually exemptions and the tax rate correlate to how closely an heir is related to the decedent.
Six states currently have an inheritance tax.
Two states—Maryland and New Jersey—have both inheritance and estate taxes.
If you currently reside in any of the states mentioned above, are planning to relocate to one of them in retirement or anticipate an inheritance from someone resident there, then schedule a consultation with an experienced estate planning attorney to help you consider all of the options.
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 in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Fox Business (June 16, 2017) “Why More States Are Killing Death Taxes”