27 May 2014 0 Comments

More Taxes at Death

shutterstock_123929266The American Taxpayer Relief Act of 2012 raised the Federal Estate Tax exemption to $5,000,000 per person (indexed) so many people who had been concerned about liquidity for estate tax were relieved.  However, states also have the ability to impose taxes when their residents transfer assets.  Fourteen states and the District of Columbia have estate taxes where the decedent’s estate is responsible for paying the tax prior to distribution to heirs.  Five other states have an inheritance tax where the recipient of the assets is responsible for paying the tax.  Two states impose both an estate and inheritance tax.

The table below summarizes these state death taxes as of April 1, 2014:

STATES WITH ESTATE TAXES

State

Connecticut*
Delaware
District of Columbia
Hawaii
Illinois
Maine
Maryland
Massachusetts
Minnesota**
New Jersey
New York
Oregon
Rhode Island
Vermont
Washington

Exemption Amount

$2,000,000
$5,340,000 (indexed)
$1,000,000
$5,340,000 (indexed)
$4,000,000
$2,000,000
$1,000,000
$1,000,000
$2,000,000
$675,000
$1,000,000
$1,000,000
$921,655
$2,750,000
$2,000,000

Maximum Tax Rate

12%
16%
16%
16%
16%
12%
15%
16%
16%
16%
16%
16%
16%
16%
19% 

 

STATE WITH INHERITANCE TAXES

Iowa
Nebraska
Kentucky
Pennsylvania
Tennessee***
Varies
Varies
Varies
Varies
$2,000,000
15%
18%
16%
15%
15% 

 

 

 

STATES WITH BOTH ESTATE AND INHERITANCE TAXES

Inheritance Tax Exemption

Maryland
New Jersey
$150
$0
10%
16%

 

 

*Connecticut is the only state that currently also levies a gift tax.
**Minnesota’s exemption increases $200,000 annually until it reaches $2,000,000
***Tennessee is gradually phasing out its inheritance tax; full phase out for 1/1/2016.

This information is not to be considered tax or legal advice.  As always, contact your own legal and accounting professionals to determine how this information effects your personal situation…but life insurance can play an important part in providing for tax liquidity.

Next…the tax implications of an MEC and how to ameliorate against any negative impact.

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