U.S. citizens may be pleased that the federal government has offered generous estate tax deductions; however, they should not get too complacent yet. New Jersey is one of the 19 states that still levy death taxes. Several states, including Washington, D.C., assess estate taxes, and seven states collect inheritance taxes, which are paid by the decedent’s heirs as opposed to the estate. New Jersey and Maryland are the two states that assess both; however, New Jersey offers one of the lowest exemptions at $675,000.
Estate planning professionals point out that estate and tax planning can cross over more than one state, since affluent clients may own homes and other property across state lines. Part of the estate planning process in such cases could involve determining which state would be the state of primary residence; however, most planners do not recommend that people rearrange their lives for the purpose of estate tax planning. Intangible property will be taxed according to the state of primary residence, regardless of which state the intangible property is in.
Financial advisers suggest that people re-examine their current estate plans in order to focus on estate tax planning, because many plans tend to focus on federal exemptions and not state exemptions. Many reasonably affluent individuals could end up paying more than they need to in estate taxes.
The process of estate planning can be complicated because those involved must consider individual state laws as well as federal laws. Financial professionals recommend performing due diligence in an attempt to avoid a significant tax bite. Because state tax laws vary concerning different kinds of property, those considering outlining their estate plans could acquire legal aid for guidance.
Source: Investment News, “States continue to claim their share through the estate tax“, Liz Skinner, November 10, 2013