Multiple States Reducing Estate Tax Threat for Families and Businesses
Since 2014, approximately nine states have eliminated or lowered their estate taxes. This was accomplished primarily by modifying and increasing specific exemptions thereby reducing the number of households that could be hit with a large estate tax bill.
For example, Maryland is planning to raise its current $3 million estate tax exemption to $4 million in 2018. The District of Columbia is ahead of the game. In 2014, D.C. passed a major tax reform deal that included increasing its estate tax exemption amount from $1 million to $2 million at the start of 2017 and to ultimately match the generous federal exemption level ($5.49 million for 2017, indexed for inflation), starting in 2018, according to Forbes.
Other states are going even further. For example, New Jersey plans to eliminate its estate tax entirely, according to the Wall Street Journal. Currently, six states have repealed their estate taxes over the past 10 years, including Virginia.
Why are States Reducing Estate Taxes?
The modifications to estate tax laws is largely driven by competition between governors and legislatures hungry for affluent and wealthy taxpayers to relocate to their respective states. Such residents owe income taxes every year, but some are willing to move out of state to avoid death taxes.
Increased exemptions to estate taxes are not just a state policy. In fact, the federal estate-and-gift tax exemption increased to $5 million in 2011.
Check out Bobby’s video explaining the basics of estate taxes:
States Also Looking to Modify Inheritance Taxes
While most recent changes have been to state estate taxes, some states with inheritance taxes are looking to make reforms to ease the tax burden on families. Six states currently tax a beneficiary who inherits assets from a deceased loved one. Inheritance tax rates and exemptions often vary according to their relation to the decedent. For example, in Nebraska, there is no tax on assets left to a surviving spouse. However, if a sibling inherits an asset, they are subject to a 1 percent inheritance tax. Assets left to a non-relative (e.g., a close friend) in Nebraska are subjected to a potential 18 percent inheritance tax.
Maryland has both estate and inheritance taxes and, as mentioned, the state legislature is planning to modify the estate tax exemption. There are no plans to modify the inheritance tax provisions under current law. Virginia, on the other hand, does not impose an inheritance tax. Also, as mentioned, Virginia no longer imposes an estate tax. The Legislature repealed the estate tax entirely in 2006. The more attractive and hospitable estate tax policies in Virginia make it much more attractive for high-income and wealthy individuals when compared to Maryland.
Speak to an Experienced Estate Planning Attorney Today
Although the gradual elimination of the state estate tax is a step in the right direction, the federal estate tax remains. In addition, taxes should not be the sole motivation for estate planning. If peace of mind and protecting your family is an important goal for you then you should talk to an experienced estate planning attorney about the other risks your estate is faced besides the tax risk. Our team of experienced trust and estate planning attorneys possess a deep understanding of estate and inheritance tax laws as well as other common risks your family and estate will likely face. Contact our office to learn more.