In our last post, we presented discussed the changes made last year to the federal estate tax system. Even if your situation falls outside of the federal estate tax system for 2011 and 2012, be aware that you still may be subject to state estate taxes if you own assets in the following states.
The following chart compares 2010 state estate tax exemptions by state to their exemption levels in 2011.
Importantly, the state estate tax may apply even though you’re not a resident of that state. If you have real or personal property in any of the above states, you could potentially be facing a tax.
Another key consideration for planning is whether you live in a state that currently collects an inheritance tax (e.g., Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania). An inheritance tax is different from an estate tax in that it is applied to the portion of assets received from an estate by individuals. An estate tax is applied to the amount of the entire estate before it is distributed. While spouses are exempt from inheritance taxes, they apply to domestic partners and other non-spouse recipients and can range from 1% to 20% of the amounts received depending upon applicable state law.
Conclusion
Even as we write this article, both federal estate taxes and state estate taxes are meeting opposition. The death tax, as it’s called, has always been and continues to be a controversial subject. To date, the U.S. House of Representatives has introduced five bills to repeal federal estate taxes, and there are likely more proposals to come.
We Want to Hear From You
Do you live in a state that has its own separate estate tax? How has it impacted your planning?
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