Saturday, April 27, 2013
Even with the large federal unified credit, a taxpayer might still have to pay state estate taxes following their death. There are still 21 states with a state estate tax. The District of Columbia also imposes a state estate tax. The problem is that most of these do not have a large unified credit like at the federal level that excludes a good amount of income from taxation. For example, in New Jersey the exclusion limit is $675,000, in Rhode Island the limit is $910,725, and in New York the limit is $1 million. In each of these states, the top rate on income exceeding the exclusion is 16%.
remember, all of a person's assets are included in this amount. This could also include life insurance depending on who receives the policy and how the policy is owned. Furthermore, several states impose an inheritance tax, which is different from the estate tax. An inheritance tax is imposed on the beneficiaries after the distribution of property, with the exception of spouses is most states and children and relatives in some. The two states that impose an inheritance tax on Maryland and New Jersey. There are ways to reduce the amount that a person will pay in estate taxes. For example, a person could give deathbed gifts which are exactly what they sound. A person could technically give away enough money to decrease their estate to below the threshold amount, but that is not always the best. A better strategy might be to discuss things with an estate planning attorney in the person's state to figure out the best possible strategies.
See Sandra Block, Retirement: State Estate Taxes Are Alive and Well, The Chicago Tribune, Apr. 16, 2013.