‘“There is a strong possibility that the gap is going to be closed over a few years,” said Jamie C. Yesnowitz, a principal at Grant Thornton and chairman of the American Institute of Certified Public Accountant’s state and local tax technical resource panel. “Once some of these other states see New York and D.C. are doing this, I would find it unsurprising if some of these other states join the bandwagon.”
Until — or if — that happens, people who have more money than their state’s exemption but less than the federal exemption generally have three options: set up trusts to reduce or defer the tax, start making gifts to reduce the estate or move. All have complications and pitfalls.”
The estate planning world has been in a bit of shock for the past few years. While the federal estate tax exemption has climbed to ever more generous levels, many states are creating new or increasing old wealth transfer taxes. Taxpayers who are in the clear when it comes to federal death taxes may be socked with state death taxes.
Will the states follow suit and drop draconian estate laws?
A recent article in The New York Times, titled “Some States Are Moving to Loosen Their Estate Taxes,” suggests there may be hope.
Not all states have their own form of estate or inheritance tax, one separate from the federal tax that hits with a 1-2 punch. In fact, most do not. Still, more than a dozen states, mostly northern and Pacific ones, do have such a tax. Interestingly, these state estate or inheritance taxes can be troublesome for more than just the residents of the taxing state.
Unfortunately, the spaces between the federal tax and the state-level taxes can be sometimes tricky to navigate. Trickier still can be the space between two states. After all, “living” across state lines is not at all out of the ordinary, but having to think about entirely different tax schemes (sales tax aside) is generally less so. Moreover, as the original article elaborates, the states find themselves at odds and fighting jurisdictional battles.
Note: An important pattern may be developing, as more states loosen the rules and either eliminate the death taxes or make them as forgiving as the federal rate. New York and D.C. have recently begun reassessing their taxes, with many more either open to debate or actually winding them down.
For more information about estate planning in Austin, TX please visit Nickerson Law Group’s firm website.
Reference: The New York Times (January 24, 2014) “Some States Are Moving to Loosen Their Estate Taxes”