Estate Planners Eye State Requirements

By Stephen Benevento, CFP®, CTFA
Manager, Client Relationships




With the higher federal estate tax exemption now at $5.34 million for an individual and $10.68 million for married couples, much of the focus of estate planning has shifted to minimizing taxes at the state level. Many states still apply some type of tax at death and current state exemption limits are significantly lower than federal limits. For example, a couple in Massachusetts with $5 million in assets would owe no federal estate tax but might owe $390,000 or more in state estate tax. Massachusetts has a $1 million individual exemption, no special provision for couples, and a top rate of 16 percent. These levels are about average for those states that still have the tax.

Traditional estate planning tools such as marital and family trusts, which were used to manage federal estate taxes, are now being used by those with estates under the federal exemption limits to plan for estate taxes at the state level. Similarly, gifting strategies used to lower estate values for those same individuals now focus on state taxes. There are entire books explaining the requirements for residency in Florida or Arizona, states with more favorable estate tax provisions.

While there appears to be a trend toward reducing or eliminating state estate taxes, the future of such taxes remains uncertain. Proposed legislation awaits the many complex political and fiscal battles in state legislatures. The new generous federal limits have not removed estate tax considerations; for many it has simply shifted the focus of planning to accommodate individual state rules.

As always, we strongly recommend consulting with your tax advisor prior to making any decisions related to your tax or estate plans.


From the Summer 2014 Edition of Values