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Estate Taxes
In 1789, Ben Franklin said, “In this world, nothing is certain but death and taxes.” As you manage wealth preservation and transfer, truer words do not exist.
By Phil Dyer, CFP
In recent years, a significant number of states have radically
changed how they deal with death and inheritance taxes. A 2001
federal tax law significantly changed the way state inheritance and
death taxes are treated on federal estate tax returns. Because of
threats of potential revenue drops, some states decoupled their
estate exemption from the federal level — freezing the estate tax
exemption at a lower level — to protect and maintain these revenue
streams. Many states have even crafted completely separate estate
tax systems.
Some states impose an inheritance tax (also called a death tax) in
addition to or in lieu of estate taxes. Indiana, Iowa, Kentucky,
Maryland, Nebraska, New Jersey, and Pennsylvania all levy
inheritance taxes. A dozen jurisdictions have decoupled their estate
tax from the federal rules and set a lower exemption amount (see
chart below).
|
State |
2006 State
Estate
Tax Threshold |
|
Kansas |
$1
million |
|
Maine |
$1
million |
|
Maryland |
$1
million |
|
Massachusetts |
$1
million |
|
Minnesota |
$1
million |
|
Nebraska |
$1
million |
|
New Jersey |
$675,000 |
|
New York |
$1
million |
|
Oregon |
$1
million |
|
Rhode
Island |
$675,000 |
|
Wisconsin |
$675,000 |
|
*District
of Columbia |
$1
million |
Source: American College of Estate and
Trust Counsel
Four
other states have separate estate tax systems:
|
State |
2006
State Estate
Tax Threshold |
|
Connecticut |
$2,000,000
|
|
Ohio |
$338,000 |
|
Oklahoma |
$2,000,000 |
|
Washington |
$1,000,000
|
Source: American College of Estate and Trust Counsel
Estate plans drafted in the late 1990s through 2001 — which
relied on streamlined state and federal estate-tax treatment — may
need to be revisited. This especially is true of estates totaling $1
million to $2 million or more, which use credit shelter trust (also
called A-B trust or bypass trust) techniques that might be exempt
from federal taxes but are subject to a nasty surprise at the state
level.
Depending on the state, these recent changes could add tens of
thousands of dollars or more in state taxes to your estate’s tax
burden, making where you die just as important as where you live —
especially for large estate holders. If you live in one of the
affected states, contact an estate-planning attorney to see if your
estate plan needs to be updated. Don’t get ambushed by estate taxes
because you weren’t paying attention.
Save on Estate Planning
■ Looking for an estate-planning attorney? The MOAA Lawyer
Listing Service can save you 25 percent on hourly fees. Visit
www.moaa.org and click on Lawyer
Listing under Services.
— Former Army Capt. Phil Dyer, CFP, is
deputy director for financial education, Benefits Information. For
financial advice, members can contact Garrett Planning Network at
(866) MOAA-GPN (662-2476) or
www.garrettplanning.com,
or visit
www.moaa.org/financialcenter for other resources.
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