In 2014, a person may die and leave as much money to their spouse as they so desire without any federal estate taxes. This is known as the unlimited marital deduction. Normally, when a person dies, the exemption also dies with them. Except for the current time, there is an opportunity to file an estate tax return within nine (9) months of date of death of the first spouse to die, which allows the surviving spouse to utilize the deceased spouse’s credit upon their own death, so long as this exemption is allowed. This is what is known as portability, and is available at the current time, and although there is no legislation pending to rescind this option, one never knows what the future may bring.
In any event, a person who is single or married, with a US citizen for a spouse, has the availability of utilizing their own exemption of $5.34 Million. This exemption amount is indexed for inflation and will probably increase again in 2015. When the law was initially established, the exemption was $5 Million, and in only a few years, it has increased to $5.34 Million.
You may therefore think that there is no problem if you should die and have less than this amount of money, correct? Wrong!
In fact, there are approximately 18 states and the District of Columbia that impose their own estate and/or inheritance taxes. Most of these states do have exemptions, and you should pay attention to the estate tax consequences when planning your estate and perhaps when moving from one state to another.
Some of these states have exemptions as low as $675,000, or as high as the federal exemption of $5.34 million, so it is important to review the tax rates where you are likely to reside when you die. For example, Massachusetts has a maximum rate of 16%, which basically ties into a credit that the federal government provides, what is known as the state death tax credit.
Of course, states are changing their rates and amounts all the time, and New York recently instituted a change that increases the exemption from $1 Million to the federal exemption over the next several years, based on the year and month of date of death.
There are seven states that have inheritance taxes that are unlike the estate tax. The estate tax taxes all estates based on the value of all assets as of date of death, but the inheritance tax taxes the individual based on the relationship of the decedent to the inheritor. In fact, some states have both an estate tax and an inheritance tax.
There are 31 states that have no estate or inheritance taxes, and those are certainly good jurisdictions in which to live at the time of your death. You should also review the income tax status of a state, as there are several states that have no estate taxes and no income taxes.
Although taxes are not a reason to move, it is certainly a consideration if you have a taxable estate.
Hyman G. Darling, Esq.
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