If the federal exemption is greater than the state exemption, the difference may become subject…
Still Beware of State Death Taxes…
Despite the new and generous federal estate tax exemption of $5 million per estate and $10 million per couple, many less wealthy families still have to plan for estate taxes–state estate taxes that is.
The $10 million exemption makes state death tax planning all the more important. You will pay more if you’re in a state that has its own death tax, like New Jersey and New York.
As of today–and with states desperate for revenue this could change–21 states and Washington, D.C., have state estate or inheritance taxes in place for 2011. Thirteen states and Washington, D.C., have estate taxes only. Typically, these taxes exempt $1 million or less per estate and carry a top rate of 16%. Six states levy only an inheritance tax, with the rate depending on the relationship of the heir to the deceased and the taxes kicking in, in some cases, on the first dollar of bequest. New Jersey and Maryland levy both estate and inheritance taxes.
New Jersey imposes an estate tax of up to 16% above a $675,000 exemption and an inheritance tax of up to 16% on every dollar left to a niece, nephew, friend or lover, but no inheritance tax on money left to children, grandchildren, parents or siblings. (Any estate tax owed is reduced by the inheritance tax paid.)
Maryland also imposes an estate tax of up to 16% above a $1 million exemption and a 10% inheritance tax on every dollar left to a niece, nephew, friend or lover, but no inheritance tax on money left to children, grandchildren, parents or siblings. (Any estate tax owed is reduced by the inheritance tax paid.)
Hawaii is the latest state to adopt its own estate tax. Its tax was effective May 1, 2010, with a $3.5 million per person exemption for 2010. That goes up to $5 million on Jan. 1. North Carolina’s estate tax, which lapsed along with the federal estate tax in 2010, comes back Jan. 1, with a $5 million exemption to match the federal exemption.
Watch for further estate tax action in state legislatures in 2011 as state politicians react to the new federal estate tax landscape. The federal estate tax deal for 2011 and 2012 has dashed states’ hopes that they would get a revenue windfall from the lapse of the Bush tax cuts at the end of 2010. Prior to the Bush tax cuts, states automatically collected revenue from the estate tax via something known as the state death tax credit. California, for example was counting on receiving $2.7 billion from the credit over the next two fiscal years.
Some of those states might copy Hawaii and bring back taxes on their own, at least on larger estates over $5 million.