Don’t Forget the State When it Comes to Estate Taxes

Currently, for people dying in 2009, you can have a taxable estate of up to $3.5 million and not pay any federal estate taxes.  For 2010, this amount is unlimited, but goes back to $1,000,000 in 2011 and beyond.

Congress is working on changing these amounts and my guess is that the current $3.5 million amount will be retained for 2010 and beyond.

Even though the federal estate has no taxes for values under $3.5 million, several states will tax your estate even if it is as low as $675,000 or in some cases even lower.  Here is a listing of the states with the minimum amount that is subject to state estate taxes:

$500,000 – Ohio

$675,000 – New Jersey and Rhode Island

$1,000,000 – Kansas, Maine, Massachusetts, Maryland, New York, Oregon, Minnesota, Tennessee, Vermont

$2,000,000 Connecticut, Illinois, Washington

Layered inheritance taxes, in many cases starting at $10,000 or less – Indiana, Kentucky, Nebraska, Pennsylvania

All other states currently do not have an estate or inheritance tax.  However, if the federal law changes, this could affect those states.

Remember that if you live in a non-tax state, but have real estate holdings in a state with an estate tax and the value is greater than the state minimum, you should look at doing planning to eliminate this tax.  You may be able to set up a trust or limited liability company or other forms of holding the property and this will eliminate the state tax.

This has been designed as a guide.  Make sure to discuss this with your tax advisor.