Keep estate tax in mind when making estate plans

When California residents make their estate plan, they may take steps to minimize their potential tax liability. One consideration toward this goal is state estate tax.

An estate tax is a tax on property that is transferred at a person's death. For many years, the federal government has increased the amount of the exemption that would free most people from having to pay a federal estate tax. Individuals who die in 2016 have a $5.45 million exemption. However, some states still have an estate tax, many of which tax estates much smaller than the federal tax exempts.

For many years, many states used federal provisions that offered a credit against federal estate tax for liability to states under their own estate tax laws. This allowed the states to skim a portion off of the tax liability without actually increasing the decedent's tax liability. This particular credit was done away with in 2004, causing many states to simply drop their state estate tax. Others opted to change the state estate tax laws. These states include Connecticut, Maine, Oregon, Washington and Hawaii. Many of these states have much lower exemptions. Additionally, Delaware, Maryland, Massachusetts, New Jersey, Rhode Island, Minnesota, New York, Vermont and Illinois have estate taxes that resemble the previous model. The state estate tax in these states may range anywhere from 0.8 percent to 16 percent.

Individuals who are completing their estate plan may wish to contact an estate planning attorney familiar with tax rules. He or she may be able to identify if a person or couple may be subject to state estate taxes. He or she may also be able to explain ways that individuals can avoid paying these taxes, such as passing on assets through a marital deduction.


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