Utah residents who only own property in Utah generally don’t need to worry about paying estate taxes unless they have an estate large enough to incur a federal estate tax. In 2015, the federal estate tax exemption is $5,430,000, which means no estate tax is due unless you have the good fortune to have an estate larger than that. If your estate is that large, then you have a good problem on your hands and should do some estate tax planning.
If you live in or own property in one of the 20 jurisdictions listed below, then you may have a state death tax issue that requires planning.
Currently 20 U.S. jurisdictions collect a death tax at the state level: Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, and Washington.
Even if you aren’t a resident of these states at your death, you may have state-level death tax issues if you own property in any of those states. Also, you should consider estate tax efficient ways to pass assets to your heirs if they live in one of these states.
In 2015, the following states will see changes to their state death tax laws:
· Delaware’s estate tax exemption matches the federal estate tax exemption which is indexed for inflation on an annual basis. Therefore, Delaware’s estate tax exemption will increase from $5,340,000 in 2014 to $5,430,000 in 2015.
· Like Delaware, Hawaii’s estate tax exemption matches the federal exemption, so Hawaii’s estate tax exemption will also increase from $5,340,000 in 2014 to $5,430,000 in 2015.
· Maryland’s estate tax exemption will increase from $1,000,000 in 2014 to $1,500,000 in 2015 and will continue to increase annually until it matches the federal exemption in 2019. In addition, in 2019 Maryland will begin recognizing portability of its state estate tax exemption between married couples, including same-sex married couples. (Currently Hawaii is the only state that recognizes portability.)
· Minnesota’s estate tax exemption will increase from $1,200,000 in 2014 to $1,400,000 in 2015 and then will continue to increase annually in $200,000 increments until it reaches $2,000,000 in 2018. In addition, married couples can now take advantage of “ABC Trust” planning to defer payment of both Minnesota and federal estate taxes until after the death of the surviving spouse.
· New York’s estate tax exemption increased from $1,000,000 for deaths that occurred prior to April 1, 2014, to $2,062,500 for deaths that occur between April 1, 2014, and March 31, 2015, and then $3,125,000 for deaths that occur between April 1, 2015, and March 31, 2016. The exemption will then continue to increase until it matches the federal exemption in 2019. Aside from this, gifts of New York property made between April 1, 2014, and December 31, 2019, will be subject to a three year look-back period. This means that any gifts made during this time frame will be brought back into the New York taxable estate if the person making the gift dies within three years of making the gift. If you anticipate making gifts of New York property or if you are a New York resident, you should consult with us about how much death tax exposure your estate has.
· Rhode Island’s estate tax exemption will increase from $921,655 in 2014 to $1,500,000 in 2015 and will then be annually indexed for inflation in 2016 and beyond. In addition, beginning in 2015 the so-called “cliff tax” will be eliminated so that only the value of an estate that exceeds the exemption will be taxed.
· Tennessee’s inheritance tax exemption will increase from $2,000,000 in 2014 to $5,000,000 in 2015. Tennessee’s inheritance tax is scheduled to be repealed in 2016.
· Washington began indexing its estate tax exemption for inflation on an annual basis in 2014. The 2014 exemption is $2,012,000, but the 2015 inflation-adjusted exemption has not been released yet.
As you can see, the days of easily being able to plan for estate taxes have changed significantly because of portability of the federal estate tax exemption and a myriad of state-level death taxes. If you have any questions about how to provide for the best federal and state estate tax protection for your family, please contact us.