In California we do not have a State Estate Tax, so we usually only have to worry about and plan for the Federal Estate tax exemption.
However, I have many clients that own property in multiple states and many times this can cause a problematic estate tax situation, especially if they later move to a State with a additional State Estate Tax.
For example, Oregon can be a real problem. They have a State Estate Tax and they apply the tax to people who have property in Oregon whether or not you are a resident there and they calculate the tax based on all property owned anywhere; inside or outside Oregon. If you own property or an asset in Oregon you should talk to an Oregon attorney or accountant about this.
So that you know, the federal estate tax exemption of $5 million per person, indexed for inflation, for 2015, will be $5.43 million, up from $5.34 million in 2014. This means up to $5.43 million of an individual’s estate will be exempt from federal estate tax, with a 40% tax rate applied to any excess over the exemption amount. By contrast, states with estate taxes typically exempt far less per estate from their tax and impose a top rate of 16%. As in the federal system, bequests to a spouse are tax-free.
States that have made Estate Tax changes include New York and Maryland who made the most significant changes for 2015. The Maryland legislature's new law increases the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption which is projected to be $5.9 million.
In Maryland, spouses, children (and their spouses and children), parents, and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10%.
Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.
New York’s changes included doubling the states exemption amount from $1 million for deaths before April 1, 2014 to $2,062,500 for deaths from April 1, 2014 through April 1, 2015. The New York exemption is set to rise gradually through 2019 to eventually match the federal exemption. By April 1, 2017 the New York exemption will be $5,250,000.
However, a so called cliff is one problem with the New York law. If a resident’s taxable estate exceeds the basic exemption amount by more than 5%, the entire taxable estate will be subject to the state estate tax.
Other states where the exemption amounts are going up include Tennessee, Minnesota and Rhode Island.
Other states indexing their exemptions for inflation are Washington, with a base exemption of $2 million, and Hawaii and Delaware, which both match the federal exemption amount.
In New Jersey thee has been a bill introduced to eliminate the state’s estate and inheritance tax. New Jersey has the lowest state estate exemption amount at $675,000.
Several sates have repealed their State Estate ax I recent years, including North Carolina and Indiana in 2013 and Kansas, Ohio, Oklahoma in 2010.