State Taxation of Estates: Mitigating and Avoiding State Estate and Inheritance Taxes

Description

Currently, with the federal estate exemption at a record-high of $11.58 million in 2020--and twice this amount if married--taxpayers have little concern about death taxes. Eighteen states, however, have either an estate tax or an inheritance tax, and these states are reluctant to increase their exemptions to the federal amount. The states of most concern are those with extremely low thresholds; Massachusett's and Oregon's limits are a minuscule $1 million. Trust and estate advisers need to be aware of these thresholds and plan appropriately to mitigate or avoid an unexpected tax bill.

New York's estate tax with a cliff threshold is particularly alarming. Estates that exceed the $5.85 million threshold by more than 5 percent are taxed on the value of the entire estate, not just amounts exceeding the limit. At the same time, the state of Washington provides a $2.5 million deduction for a qualified family-owned business interest (QFOBI). A primary consideration of all taxable estates is should the taxpayer move his domicile to a state without a death tax.

Listen as our panel of estate tax experts explains state taxes payable at death, including estate and inheritance taxes, state responses to portability, unique exemptions and planning opportunities in these states, and how to establish residency in a no-tax state.