Don’t Forget About Estate Taxes at the State Level
April 19th, 2013
Although the new $5.25 million exemption shields the vast majority of estates from federal taxes, state estate taxes are alive and well. Currently, 21 states and the District of Columbia impose some type of death tax, and most kick in at a level much lower than the fed's trigger.
Capitol Hill will see budget battles in the near future. But all fighting aside, estate planners are more relaxed this time around due to the outcome of the last battle, where federal estate tax laws went into effect through the American Taxpayer Relief Act (ATRA) at the beginning of the year. Consequently, most taxpayers have been spared the federal estate tax. But don’t forget about those estate taxes at the state level.
As a recent Kiplinger article warns, the state level transfer taxes have not fallen away like the federal transfer tax. The article, titled “Beware States With Their Own Estate Taxes,” notes that fully 21 states (plus the District of Columbia) currently impose some kind of transfer tax, whether a death tax, an inheritance tax, or both simultaneously. Furthermore, if you pay too much attention to the federal tax, then you might think you are home free in terms of exempt amounts. Unfortunately, state taxes are, generally, set with much lower exemption amounts.
The Federal tax has been permanently set at a rather generous range with a $5.25 million exemption amount. On the other hand, New York starts taking a piece of the estate pie at $1 million.
If you live in a death tax state, now is the time to be planning to avoid or minimize the impact. For that matter, too, where do you plan your retirement? Crossing into a new state for retirement or late-in-life care is not just about passing the “Welcome” sign on the highway. Accordingly, remember to consider how your move will affect your assets and overall estate plan.
Then again, how much do you trust Congress and their idea of a “permanent” estate tax law?
Already these new budget battles have given platform to new calls for a change in the “permanent” federal estate tax exemption. In fact, the Obama Budget Proposal would reduce the just-agreed-upon “permanent” exemption from $5.25 million to $3.5 million (The Washington Times here).
Reference: Kiplinger (May 2013 issue) “Beware States With Their Own Estate Taxes”