Although most people's estates aren't large enough to be affected by the federal estate tax, residents in many states have to consider how state taxes may reduce their estates. Several states have their own estate tax, which can affect much smaller estates than the federal estate tax does. In addition, some states impose an inheritance tax on beneficiaries of an estate.
When it comes to taxes, where you live means everything. In fact, simply stepping over into the next state can change everything.
For those planning their estates, estate planning laws can be troublesome enough without the additional complexity of state estate and/or inheritance taxes. ElderLawAnswers recently considered this issue in an article titled "Have You Planned for State Estate and Inheritance Taxes?"
If your state also has a level of estate or inheritance taxation, then the applicability of such taxes is yet another obstacle to overcome. Accordingly, you should plan for them just as you would for the federal estate tax.
Note: the exemption amounts and tax rates may vary from the federal level (and in some states, they may even vary from person to person).
Don't have a state estate or inheritance tax to worry about? Even if your state does not have its own estate or inheritance taxes now, watch out! With many states facing budget shortfalls, taxing the estates and inheritances may be coming closer to home.
In addition, when it comes to state estate and inheritance taxes you need to plan for the future. Know the tax laws of your current state and any state in which you may consider in the future.
Bottom line: Be sure to plan for these unique state laws, even if the federal laws get all the press.