Estate taxes vary greatly by state.
You have started to think about estate planning.
Will what you leave behind for your heirs be taxed?
If so, how much?
These are important questions to consider.
Federally speaking, you will only owe estate tax if you are single and have more than $5.49 million in assets or if you are married and have more than $10.98 million in assets.
You have less than this.
You do not have to pay estate taxes, right?
Not necessarily, according to a recent MarketWatch article titled “Here are the 20 most expensive places in America to die.”
About 20 states have their own inheritance tax or estate tax.
Some even have both.
Also, many of these state "death" taxes have a far lower threshold than the federal estate tax.
What is an estate tax?
An estate tax is paid by the estate and calculated from the final value of all of your assets.
Some states like Delaware, Hawaii, and Maine have the same threshold as the federal level.
Others are a little lower like New York at $5.25 million.
Still, some have a much small threshold such as D.C., Massachusetts, and Oregon at $1 million.
Six states have their own inheritance tax.
What is an inheritance tax?
An inheritance tax is paid by the heir and is based on the "degree of relationship" to the decedent and to the value of specifically inherited assets.
The threshold is often far lower.
Will all heirs need to pay?
Spouses are automatically exempt.
Children and grandchildren are also exempt, except in Pennsylvania or Nebraska.
Some states do have both inheritance and estate taxes.
New Jersey and Maryland are examples of those with both.
What are their thresholds?
For the inheritance tax, the threshold is zero—an inheritance tax will always be owed.
The maximum estate tax rate and inheritance tax rate are both 16 percent.
What does it mean to owe both federal and state estate taxes?
You will lose a lot of money even though these taxes are not stacked on top of each other.
The federal estate taxes you owe are calculated from the value after state estate taxes are paid.
Still, with a 40 percent rate for the federal estate tax, you could owe a significant amount of money if you are over this threshold.
What can you do?
You could move to a state with no separate estate or inheritance taxes.
If you choose this route, you will need to be sure you have officially established residency.
You should also work with an experienced estate planning attorney to create the best plan for you and your heirs.
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: MarketWatch (April 20, 2017) “Here are the 20 most expensive places in America to die”