In addition to federal estate taxes, most of us also face the dreaded prospect of having to pay state estate taxes. Even if you live in a state that does not impose in each state tax, you may have assets located in a state that does have any state tax.
Historically, instead of imposing their own completely separate estate tax, most governments opted to share in the estate taxes collected by the federal government. The government referred to this method of sharing with states as a pick up tax period in reality, it was a kick back to the states of a portion of the tax the federal government collected.
Federal law illuminated the pickup tax which resulted in a drastic cut in the amount of revenue that the states received from estate tax period many states, having become accustomed to receiving this extra money each year from the federal government, have subsequently established their own state death tax laws to enable them to continue to collect the tax. While some states have abolished state estate taxes, others continue to impose the tax appan land and property you own at death. In many instances state taxes may take a small but annoying bite out of your estate. But in some states, death taxes can be steep.
How will these state taxes affect me?
First, the state imposed taxes will be assessed regardless of what Congress does on the federal level. Therefore, if you desire to pass your state without losing a substantial amount in a state taxes, me to plan to avoid stateless state taxes in addition to any federal estate tax period and contact a real estate lawyer to manage the movements.
If you expect to leave an estate worth less than the exempt level established by both the federal and state governments, you may not need to worry about death taxes. However, each state sets its own exemption amount, which is subject to change at anytime. If you have an estate larger than the exempt amount, or you are planning to leave your property to your spouse, who may then have an estate is exceeding the exempt level, you may wish to learn more about how to reduce estate taxes to lowest possible amount.
Second, the new state inheritance taxes have made estate planning much more challenging period formerly, estate planning was needed to avoid just the federal estate tax, but now a state planning must simultaneously take both taxes into consideration. This is not a simple task since the two tax codes can follow different rules. Planning to avoid one tax could trigger the other period for example, if your state plan is designed to avoid the minimum possible amount of federal estate taxes, it might trigger a state a state tax at the death of the first spouse in those states where the state exemption is lower than the federal exemption. Conversely, if your plan is designed to completely avoid state estate taxes it could sacrifice your ability to avoid federal estate taxes.
The decision as to which of these two taxes to avoid is an individual one that needs to be taken into account your families planning goals, as well as the tax consequences of planning to avoid one tax versus the other period you must make a well informed decision that best protects your family. A qualified estate planning attorney will be needed to help you sort through these complex issues and help you evaluate whether a state death tags will apply to your situation.