Some states are better than others for decedents dying in the year 2012. Although California boasts a relatively high income and sales tax, it is actually a great place to die for tax purposes. As a way of background, it is important to understand some different terms. An estate tax is a tax paid by the estate of a decedent. An inheritance tax is paid by heirs who receive a distribution from an estate. The Federal estate tax exemption is currently set at $5 million indexed for inflation. There is no federal inheritance tax.
The California estate tax was phased out in 2005 and heirs have not paid an inheritance tax since 1982. However, Washington D.C. and 22 other states do impose an inheritance or state estate tax. Most of the states that impose the estate tax exempt around $1 million per estate with the highest tax rate at 16%. Kentucky and five other states impose only an inheritance tax. Pennsylvania, for example, imposes an inheritance tax of 4.5%-15% on money left to anyone other than a spouse. New Jersey and Maryland impose both taxes. New Jersey imposes an estate tax of up to 16% with the lowest state estate exemption of $675,000. New Jersey also imposes an inheritance tax from 11-16% on money left to nieces, nephews or friends but no inheritance tax on money left to parents, siblings, children or grandchildren.
Coinciding with federal changes in estate tax law, many states revamped their laws regarding estate taxes in 2011. Ohio abolished their estate tax effective January 1, 2013 while Illinois brought back its estate tax for decedents dying in 2011 and after. Connecticut lowered the exemption amount from $3.5 million to $2 million per estate. North Carolina, Rhode Island, Vermont and Maine all raised their exemption amounts.
Estate taxes continue to raise numerous questions and concerns for families today. However, California residents have far less concerns since we have a more favorable tax system for decedent estates.
Given the instability of the tax laws, many estate planning attorneys recommend that clients revisit their estate plan on a yearly basis. If you would like an experienced estate planner to review your documents call Burt + Clerc and one of our attorneys will be glad to assist you.