Currently 19 states and the District of Columbia have no state estate taxes. As a result, many states such as Florida that have no state income or estate taxes attract people with large estates who live in other jurisdictions as they plan for the future. Although you might not worry simply because you don’t live in an applicable state, you should think twice before you become too complacent. If you move, you could find yourself living in a state that has an estate tax, or your state could decide to implement such a tax with an eye towards the revenue it could bring in. For this reason, estate planning is more important than ever.
The federal estate tax exemption of $5 million per person is now permanent and indexed for inflation. There is a 40 percent tax on amounts over the exemption. Under state estate tax statutes the exempted amount is usually far lower. For example, New York has an exemption of $1 million. That means an estate of $5.34 million, adjusted for inflation and probated in 2014, would owe no federal tax but would owe the state $431,600. Six states have just an inheritance tax while two states have both estate taxes and inheritance taxes.
New Jersey, which has both, has estate taxes that range from 4.2 percent to 15 percent and inheritance taxes that range from 11 to 16 percent. However, four states have repealed their state estate taxes, while other states are significantly increasing the exempt amounts.
One of the purposes of estate planning is to pass on as much property as possible to heirs. With different laws in each state, knowing the best way to avoid taxation when planning for the future could save a significant amount in taxes.
Source: Forbes, “Where Not To Die In 2014: The Changing Wealth Tax Landscape“, Ashlea Ebeling, November 01, 2013
