New York Estate Planning & Elder Law Blog
It’s not uncommon to turn on the television and see an advertisement for a state that is enticing visitors to vacation or move there permanently. However, more and more states across the nation are also trying to advertise that they are a great place to die. In 2015, four states are increasing their state-level estate tax exemption, reducing or eliminating altogether the amount of state estate tax that heirs will have to pay.
States Lowering Estate Taxes
As of January 1 next year, Tennessee’s estate tax exemption will jump to $5 million from $2 million this year. In addition, Maryland’s raised its estate tax exemption level from $1 million this year to $1.5 million next year. Minnesota is increasing to $1.5 million from $1.2 million, and in April 2015, New York’s exemption level will rise from $2.062 million to $3.125 million.
And that is not all – in 2016, Tennessee is eliminating its state-level estate taxes. Maryland and New York plan on continuing to increase their exemption levels through 2019, when they will match the federal estate tax exemption level. Minnesota plans on increasing its exemption for state estate taxes by $200,000 every year until it reaches $2 million in 2018.
Reasons Behind the Shift
Legislators in states that have enacted a state-level estate tax are concerned that wealthy retirees will simply move to another state to avoid the taxes, depriving the state of income taxes now. Taxes are the most common reason why retirees move from one state to another, and it is not hard to understand why that is the case.
Hawaii and Delaware have state-level estate tax exemptions that match the federal level. However, fourteen states and Washington, D.C. have lower exemption levels than the federal limit, and their tax rates range from twelve to nineteen percent. New Jersey’s estate tax exemption level is only $675,000, which affects heirs that inherit even relatively modest estates.
In addition, seven states have an inheritance tax, which differs from an estate tax. Unlike an estate tax, which is made against an estate before the assets have been distributed, an inheritance tax is paid by the beneficiaries. Maryland and New Jersey have both estate and inheritance taxes with maximum rates ranging from 9.5% to 18%.
What You Should Do
If you live in a state that has an estate or inheritance tax, you can consider moving to a state that does not or that has a high exemption level. If you live in a state that has an estate or inheritance tax and you do not want to move, you should speak with an experienced estate planning attorney about other tax saving strategies for your estate plan. For example, you can take advantage of making gifts during your lifetime to reduce the size of your estate.
In addition, if you already have an estate plan in order, make sure that it is regularly updated to reflect any changes in your state’s estate or inheritance tax laws. As more states try to keep or lure more retirees, more changes to the state-level estate tax should be expected.