An Overview Of State Death Taxes

For those financial professionals working with estate taxes,it can be helpful to obtain an estate planning certificate. Attending an estate planning school can be a great step towards becoming an effective estate planning specialist. This brief articleoffers an overview of recent updates to estate and death taxes across thecountry, which is an important topic for all financial professionals.

For 2009, individuals avoided estate taxes if their taxableestate was valued at $3,500,000 or less. At this level, it is estimated just5,500 estates a year were subject to federal estate taxation. At the previous$2,000,000 limit, 17,500 estates annually were subject to the tax (source:Urban-Brookings Tax Policy Center). The figures for state estate andinheritance taxes vary widely.

Keeping track of constantly changing state death taxes canbe difficult. Delaware added an estate tax in 2009, while Kansas and Illinoiswere expected to eliminate such a tax in 2009. Eight states have inheritancetaxes that are levied on heirs, not estates. In many states, rates are tied tohow closely the heir is related to the now deceased donor. For example,Pennsylvania taxes children and grandchildren at an almost-flat rate of 4.5%while more distant relatives pay up to 15%.

Taxpayers who live in states without estate taxes, such asCalifornia and Florida, may face estate taxation if they own property in astate that has an estate or inheritance tax. Such possible taxation is based on“domicile,” a much broader definition than “residency.” It is possible forsomeone to have multiple domiciles since domicile may be determined by wherethe person votes, has a church or club membership, registers a car or owns aburial plot. For example, when Campbell Soup magnate John Dorrance died in1930, both New Jersey and Pennsylvania each collected about $15 million indeath taxes.

Advisors may wish to consider a bypass trust for marriedcouples living in a state that imposes any kind of death tax that has anexemption lower than the federal level. With a bypass trust, when the firstspouse dies, assets go into a trust the surviving spouse can draw. When thesecond spouse dies, any remaining assets in the bypass trust pass tax-free toheirs, thereby preserving the value of both individual exemptions.

From this summary it’s clear there are many rules and regulationsto abide by when it comes to being an effective estate planning specialist. Estate planning school can lead to an estate planning certificate, which can instill confidence in your clients.Keeping up to date with current legislation is very important for financialadvisors and this kind of certification will help keep advisors informed ofwhat they need to know regarding estate and death taxes.