We are very blessed to live smack-dab in the middle of the United States, here in Kansas and Missouri. Sure, cultural fashions arrive here from both coasts with some delay (like colored mohawks and body ink), but that is not necessarily such a bad thing. I mean I can live without any "bling" on the rear end of my jeans.
On the other hand, if you are moving outside of the heartland for retirement, then you need to beware of how folks elsewhere approach things affecting your wallet (right beneath that bling on your jeans).
This includes death taxes, whether estate, inheritance or both forms of taxes.
First, a little background.
The Brookings Institute has studied federal estate taxes and found that only about one in 700 Americans actually are subject to them. However, each state has its own tax system, too.
This is where you must look before you leap.
While the federal applicable exclusion is $5.43 million in 2015 or $10.86 million for a married couple, many states have much lower thresholds. This casts a much wider net—meaning there is a greater likelihood your estate will be subject to state death taxes.
To add insult to injury, some of these taxing states do not even index their exemption amounts for inflation, which gradually increases the number of taxpayers affected.
So, how big is the problem of death taxing states?
Sixteen states and DC have an estate tax, with some taking a bigger chunk of your estate than others.
For confirmation we turn to a "Garden State" newspaper, The Times of Trenton.
In a recent article, titled “N.J. ranks among worst states to die from an estate tax perspective,” The Times asks why more taxpayers are paying estate tax on a state level than the federal?
Of all of the states, New Jersey has the distinction of having the lowest exemption level for estate taxes ($675,000).
On estates larger than this exemption amount the New Jersey estate tax rates range from 4.8% to 16% of the total estate.
And, it gets worse from there.
Not only does the Garden State levy an estate tax, but it is one of only two states to assess an inheritance tax where applicable. This is a tax the "inheritor" pays based on his or her degree of kinship to the decedent.
The state also has a three-year look-back on gifts considered to be in contemplation of death—this could trigger even more inheritance taxes!
Remember: Spouses are exempted from paying estate or inheritance tax, and in some states, this exemption applies to civil unions.
Practically speaking, death taxes are first experienced in most families at the death of the surviving spouse. Commonly, that is when assets are passed to other non-spousal beneficiaries.
Unfortunately, too many otherwise responsible taxpayers wait until it is too late to establish a plan addressing death these taxes in all its shape-shifting forms.
Develop an estate plan to help to reduce future estate taxes wherever you reside ... especially if you are retiring to New Jersey!
An experienced estate planning attorney can help determine the most appropriate approach for you, your loved ones and your hard-earned assets.
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) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: The Times of Trenton (April 25, 2015) “N.J. ranks among worst states to die from an estate tax perspective”