Are you affected by the estate tax? And not just the federal estate tax ... your state may have its own estate tax you should be aware.
The federal estate tax is a big issue in every federal election cycle. People disagree greatly over what the estate tax exemption limit should be, what the estate tax rate should be and whether there should even be an estate tax at all.
Quite often accusations of class warfare are thrown around by candidates and their supporters. However, as the current federal estate tax exemption is $5 million (adjusted to $5.34 million for inflation in 2014) the reality is that it effects a very small percentage of American families.
Many states have estate tax exemptions far lower than the federal exemption. As a consequence, these state taxes effect more people.
Until 2005, a federal credit was given for any state estate tax paid, but that is no longer the case. That means that some families are paying estate taxes to both the federal and state governments on the same money.
A recent article in Kiplinger,titled "States Are Lowering Their Estate Taxes to Lure Retirees," reports that four states will lower their estate taxes in 2015 in an effort to bring wealthy families into their states.
When planning your estate it is important to remember the consequences of any estate taxes in your state. This is particularly key if you move to another state for retirement.
Do your homework and consult an experienced estate planning attorney in the new state to discuss any state estate taxes and get a fresh review of your estate planning documents while you are at it.
Massachusetts does impose an estate tax for those estates over one million dollars. Given that the Federal estate tax exemption in 2014 is $5,340,000, you should make sure that any estate tax planning you have done incorporates the Massachusetts exemption standard, not just the Federal exemption standard. For instance, if you have a Credit Shelter Trust that only references the federal estate tax exemption, but your estate is lower than $5,340,000, your estate would not be subject to Federal estate taxes, but it would very likely be subject to the full Massachusetts estate tax. If the Credit Shelter Trust had referenced the Massachusetts estate tax exemption, it is possible that $1 million from your estate could have been sheltered from Massachusetts taxes. If you have concerns about whether your estate plan incorporates Massachusetts estate tax concerns, consult an estate planning attorney.
Reference: Kiplinger (October 31, 2014) "States Are Lowering Their Estate Taxes to Lure Retirees"