The federal death tax exemption (amount each person can leave behind at death) is increased to $5,430,000 in 2015. Many folks think that is all there is to be concerned about. However, if you live in some of the other states, you may have a state death (estate) tax.
Massachusetts levies a state death tax if the total taxable assets are more than $1 million. The tax rate is 16 percent. So, if you were a citizen of Massachusetts that died leaving just $2 million, your estate would pay $160,000 state death tax.
I understand Oregon has the same limits and tax rate as Massachusetts. New Jersey is even worse. A New Jersey citizen has a state death tax if the total assets are more than $675,000 and their top tax rate for that is 16 percent also. So, if you died as a New Jersey citizen with $2 million of taxable estate, the state death tax is $212,000.
The “taxable estate” usually means the fair market value of all assets of every kind less any debts, mortgages and administration expenses. For example, if your home was worth $300,000, your vehicles $50,000, your retirement accounts $200,000, your collections, jewelry, furniture and personal effects $50,000 and you had $1 million of life insurance, your total assets might be $1.6 million. If the debts and expenses of administration were $10,000, your taxable estate might be $1,590,000.
If you lived in a state that had a death tax on taxable estates of more than $1 million, then $590,000 would be subject to the state death tax. At 16 percent tax rate (fairly common for states that have a state death tax), your heirs would pay about $94,400 state death tax.
It is great that Nevada is one of the states that does not have a state death or inheritance tax! Maybe that is one of the reasons folks move to Nevada.
If you have friends or family that live in a state that has a state death or inheritance tax, you might urge they find out if it is worth moving to a different state — one that has no state death or inheritance tax.
I remember how surprised I was when a young man here in Nevada inherited some assets of about $80,000 from his uncle in Pennsylvania. The inheritance tax was not a welcome surprise. He had less to use for college expenses, but he was very grateful for the inheritance, even after paying Pennsylvania the inheritance tax. Their tax rates vary depending upon how close the heir was as a relative. Nephews pay more tax than a child.
Nineteen states levy an estate tax on assets of people who die or an inheritance tax on those that receive the assets, or both.
Did you hear? “Without wood, a fire goes out; without gossip, quarreling stops.” — Proverbs 26:20.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.