Is Your State Continuing Death Taxes?
As death tax relief eases the federal burden on family business heirs, revenue-hungry states are grabbing bigger chucks of the legacy.
Under the old tax regime, state estate taxes were deductible from the federal levy. However, deductibility is being phased out by 25% per year and will be eliminated by 2005. And as the federal threshold increases, several states lowered the amount exempted from death tax. Now that $1 million is exempted from federal death taxes, Wisconsin and New Jersey exempt only $675,000 and Massachusetts and Minnesota exempt $700,000. For example, in Massachusetts, an estate of $1,000,000 would now trigger no federal tax, but require a $33,000 payment to the Bay State.
Since death tax treatments vary from state-to-state, this complicates estate tax planning. Trusts designed to preserve the federal exemption while leaving assets to a surviving spouse could still be hit by oneâ€™s state of residence. Moving from one state to another will require estate tax plan reviews and potential revisions.
The following states have enacted new laws to assure continued death tax revenues: Pennsylvania, New Jersey, Massachusetts, North Carolina, Maryland, Minnesota, Wisconsin, Rhode Island, Vermont, Nebraska, Maine and Washington, D.C.
Some states, including Florida, Alabama and Nevada, constitutionally ban taxation of estates.
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