When you hear about estate taxes, you may immediately think about the federal level. Many people are aware of the fact that the exemption on the federal level is quite high, so you could go forward with the impression that your estate will not be in taxable territory.
It is true that there is a relatively high estate tax exclusion or exemption. In 2016, the amount of this exclusion is $5.45 million, and the top rate is 40 percent. Only the portion of an estate that exceeds the amount of this exclusion would potentially be exposed to the federal estate tax.
State-Level Estate Taxes
Even if your estate is not going to be exposed to the federal estate tax, your family is not necessarily out of the woods. The District of Columbia and 14 of the states impose state-level estate taxes. In many cases, the exclusions are much lower than the federal exclusion.
Our practice is located in the state of Indiana. There is no state-level estate tax in our state, but there can still be a cause for concern.
If you own property in a state that does have a state-level estate tax, the tax in that state could be applicable after you pass away. For example, let’s say that you decide to purchase a summer beach home, and you have relatives in New Jersey. You decide to buy a vacation house on the Jersey shore.
The state of New Jersey has a state-level estate tax, and the exclusion in that state is the lowest among the states that have estate taxes of their own. The New Jersey estate tax exclusion is just $675,000, and the maximum rate is 16 percent.
You should definitely take this dynamic into account when you are devising your estate plan. If you would like to see a list of the states that have state-level estate taxes, visit this page: State-Level Estate Tax Chart.
It is also important to be aware of the existence of inheritance taxes. An inheritance tax differs from an estate tax in that it can be applicable on transfers to each nonexempt inheritor. So, multiple impositions of an inheritance tax could be applied when one estate is being administered.
There is no federal inheritance tax, but there are a handful of states that have a state-level inheritance taxes. We had a state level inheritance tax in Indiana, but it was repealed in 2013.
Schedule a Free Consultation
Through intelligent advance planning, you can reduce your tax burden if you are facing exposure on any level. We can discuss your options with you in person if you would like to explore estate tax efficiency strategies, and you can also contact us if you have different estate planning concerns.
Our firm offers free consultations, and you can send us a message through this page if you would like to set up an appointment: Indianapolis, IN Estate Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.