Business Owners and Wealthy Individuals: Don’t Forget to Account for State Estate Taxes
April 29, 2013
Lawmakers’ decision to allow for a $5.25 million exemption for estates may have served as a great relief to wealthy individuals and small business owners who want to pass on considerable wealth to future generations. However, during estate tax planning, it’s important for individuals to also take estate taxes that their particular state may impose to gain a more accurate picture of their liability.
Kiplinger notes that 21 states and the District of Columbia currently impose some type of estate tax, most of which have significantly lower thresholds than federal guidelines. This includes New Jersey – which imposes a tax on estates worth more than $675,000 – and New York, which taxes estates valued at $1 million or more. The top rates in these highly-populated states currently sit at 16 percent, Kiplinger reports.
In addition to estate taxes, some states also impose an inheritance tax, which can further cut into the wealth an individual can pass on.
Forbes reports many people with considerable assets are relying more heavily on bypass trusts, which are typically set up after the death of a first spouse. In other instances, more individuals are relying on tax-free gifts to help lower their liability. Under the current rules, individuals can gift up to $14,000 tax free to any number of individuals.