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Monday, July 30, 2018

Estate Planning Pitfall

   

Estate Planning Pitfall

You’re not paying enough attention to state estate tax laws

The Tax Cuts and Jobs Act (TCJA) provides greater flexibility in estate planning for many taxpayers. Under the TCJA, the federal gift and estate tax exemption is increased from $5 million to $10 million, subject to inflation indexing. The indexed amount for 2018 is $11.18 million.

The exemption is effectively doubled to $22.36 million for a married couple. Thanks to the portability provision, the estate of a surviving spouse can utilize the unused portion of the exemption from the estate of the first spouse to die.

So, no more estate tax worries for most people, right? Not so fast. For residents of some states, state estate or inheritance taxes can still present a significant problem.

Currently, 12 states and Washington D.C. impose an estate tax, while six have an inheritance tax. Maryland is the only state with both. Of those states with estate taxes, Washington maintains the highest rate at 20%, while Nebraska has the loftiest inheritance tax rate at 18%. Generally, the state estate tax exemptions on the books are lower than the federal exemption of $11.18 million.

In recent years, several states have moved away from taxing the estates of their residents, including New Jersey, which completed the phase-out of its estate tax repeal in 2018. But the trend could reverse quickly, as states search for ways to make up revenue shortfalls in the wake of the TCJA.

Lesson to be learned: Don’t assume you’re completely in the clear on estate taxes.


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