0

What… My Taxes are Going Down? What Gives?

Happy-old-coupleThere could be more reductions in the offing, as lawmakers in Minnesota recently raised the state's estate tax exemption to $2.1 million retroactive to January. That exemption will rise to $2.4 million next year. Similarly, Maryland is going to increase its $3 million exemption to $4 million in 2018. New Jersey's exemption of $675,000 per person increased to $2 million per person this past January.

In addition, Fox Business’s article, “Why More States Are Killing Death Taxes” reports that the Garden State will also totally eliminate its estate tax, making New Jersey one of about six others that have ended their estate taxes in the last ten years.

The tax-cutting trend stems from an intense competition between the states for affluent and wealthy taxpayers. Residents owe income taxes every year. However, there are those who are willing to move out-of-state to avoid death taxes. In addition, with the federal estate and gift tax exemption increasing to more than $5 million, states with death taxes really stick out.

There are two holdouts, Massachusetts and Oregon. These two are the only states with estate tax exemptions of $1 million or lower, compared to nine in 2009. The tax in both states will increase annually because neither adjusts for inflation. Some Massachusetts lawmakers are concerned about losing residents to other states because of its estate tax, a $400 million revenue generator last year. Massachusetts is looking at upping the exemption to half the federal level and maybe excluding the value of a residence.

It’s a different story in Oregon where efforts to raise the exemption have met with resistance in the legislature. The estate tax revenue of $200 million for the two-year cycle ending June 30 is 50% higher than forecast, which has been helped by strong housing and financial markets. Nevertheless, few people are expected to leave Oregon to avoid its estate tax.

In another six states, it’s the inheritance tax that is creating pressure on the government. An inheritance tax is payable by the person who inherits assets, not the estate of the person who died. Inheritance tax rates and exemptions often vary, according to the heir's relation to the decedent. For instance, in Nebraska, there’s no tax on assets left to a spouse, a top rate of 1% on assets passed to lineal relatives or siblings and a top rate of 18% on assets left to non-relatives.

There are two states, New Jersey and Maryland that have both an estate and an inheritance tax. They’ve both trimmed their estate tax, but neither state has modified its inheritance tax. On the bright side, Maryland has large exemptions to its inheritance tax.

Reference: Fox Business (June 16, 2017) “Why More States Are Killing Death Taxes”

Leave a Reply

  • Fill in the form below to download your e-book


    Download your free Avoid These Five Common Estate Planning Myths e-book
  • This field is for validation purposes and should be left unchanged.