Where You Die Matters, If You Want to Minimize Your Heir’s Tax Burden
Depending on where you die, you may be able to leave a relatively large sum to your heirs, tax-free, since some states have tied their state estate taxes to the federal amount.
If you die in 2018 in Hawaii, Maine or Washington, D.C., you will be able to leave $11.2 million tax free to your heirs. If you live a few years longer, you’ll be able to do the same in Maryland (2019) and Connecticut (2020). That’s because the recent tax bill doubles the base federal estate tax exemption to a little over $11 million, indexed for inflation for tax years 2018 - 2025. The federal estate tax is 40% on assets above $11.2 million. This tax affects just 1,800 estates in the US next year.
Forbes notes in its recent article, “Where Not To Die In 2018,” that along with this news, there are two states that are eliminating estate taxes in 2018: New Jersey and Delaware. New York is set to match the current federal exemption amount—a base of just over $5 million indexed for inflation—in 2019.
Massachusetts and Oregon now tie for the lowest estate tax exemptions at $1 million per person. Because of high property values, it is very easy for a couple with a primary residence, some retirement savings, and a life insurance policy to have a taxable estate in Massachusetts. Unlike many other states, Massachusetts does not seem to have any plan to reduce or eliminate this tax burden.
The amount of money you can leave to your heirs without any state death tax depends on where you live and own property, to whom you’re leaving the money and whether your estate planning is current. The highest rates are about 16%, and for inheritance tax states, the tax can apply to the first dollar of assets, meaning there’s no credit like there is on federal estate taxes.
Some taxes can be avoided with fairly straightforward planning, and if you are significantly above the taxable amount, there are other planning strategies worth considering. In addition, you’ll want to designate a guardian for minor children, name someone to act on your behalf to make medical and financial decisions if you are unable to, and have a will that delineates what you want to happen to your assets, when you have passed.
You’ll also want to make an appointment to meet with an experienced estate planning attorney, if you haven’t updated your planning lately. There may have been changes in your life or in the law that should be addressed.
Reference: Forbes (December 21, 2017) “Where Not To Die In 2018”