Fewer estates are subjected to the federal estate tax than ever before. The Brookings Institute estimates that only 1 in 700 taxpayers end up paying any federal estate taxes. Unfortunately, the same cannot be said for estate taxes levied by certain states. With a handful of states assessing both estate and inheritance taxes, dying in the wrong state could prove costly for your beneficiaries. After working a lifetime to accumulate assets, it may be wise to preserve as much of that legacy as possible.
An article in The Times of Trentontitled, “N.J. ranks among worst states to die from an estate tax perspective,” asks why more taxpayers are paying estate tax on a state level than the federal?
While the federal applicable exclusion is $5.43 million in 2015 or $10.86 million for a married couple, many states have much lower thresholds. This casts a much wider net—meaning there’s a better chance that your estate will be subject to state tax.
Also, the article points out that some states don’t index their exemption amount for inflation, which gradually increases the number of taxpayers affected.
Sixteen states and DC have an estate tax with some taking a bigger chunk of your estate than others. That’s why it’s important to understand which states are going to take more out of your beneficiaries’ inheritance when you pass away.
Which state is Number One?
The state I was born in: New Jersey! Of all of the states, New Jersey has the distinction of having the lowest exemption level for estate taxes ($675,000). Estate tax rates range from 4.8% to 16% of the total estate.
But wait! There’s more: not only does the Garden State levy an estate tax, it’s also one of only two states to assess an inheritance tax where applicable. The state also has a three-year look-back on gifts considered to be in contemplation of death—this could trigger more inheritance taxes!
Remember that spouses are exempted from paying estate or inheritance tax, and in some states, this exemption applies to civil unions.
So it is really at the death of the surviving spouse when assets are passed to other beneficiaries that estate taxes come to the forefront. Too many people wait until it is too late to establish a plan that addresses these taxes. Develop an estate plan to help to reduce future estate taxes. Speak to your estate planning attorney to determine the most appropriate approach for you.
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning. Why not call us for a complimentary consultation at 757-259-0707.
Reference: The Times of Trenton (April 25, 2015) “N.J. ranks among worst states to die from an estate tax perspective”