Now the death-tax debate has shifted to state capitals, with mixed results depending on which party runs the state. Prior to 2001, states could impose an estate tax of up to 16% with no extra burden on their residents because a federal tax credit offset state estate taxes. That policy has ended and now state death levies are paid out of the assets of the deceased.
The American Taxpayer Relief Act of 2012 has pretty much killed the federal estate tax beast for the majority of Americans, with exemptions at $5.25 million per taxpayer or $10.5 million for married taxpayers.
But what about “state” estate taxes?
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. 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 various 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 as of late, the state estate taxes pose a potential trap for unwitting estate planners.
Granted, you may still “vote with your feet” when it comes to state laws. 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.
Reference: The Wall Street Journal (August 20, 2013) “The Die Harder States”
