Could you be liable for additional estate tax? Taxpayers could forget an important part of estate planning and leave themselves open to extra tax liabilities.
In the U.S., an individual’s estate beyond $5,250,000 (the threshold limit for 2013) is subject to federal estate taxes. Since most estates are valued below this threshold limit, taxpayers often do not worry about estate taxes, unaware of the fact that this threshold is the federal estate tax limit and not for state purposes. US states have their own set of rules for estate and inheritance taxes.
AG Tax professionals have prepared a brief summary on estate taxes for states, which may be useful to taxpayers who are undertaking estate planning and trying to understand the different factors involved.
What is Estate Tax?
Estate tax is a tax on an individual’s right to transfer property at his/her death. It is a tax levied by the federal government and certain states in the United States, on the net estate (assets less liabilities and final expenses) of a deceased, in excess of the respective threshold limits.
Even a non-resident alien holding US property will be liable to estate taxes on this property if the fair market value as at the date of death is above the threshold limit.
Who Needs to Pay State Estate Tax?
The executor of the estate needs to file Form 706 (United States Estate [and Generation-Skipping Transfer] Tax Return) within nine months from the individual’s date of death. If the individual resided in a state that levies estate taxes and if the estate is beyond the state-permitted threshold limit, the executor will also be required to file a return and pay the estate tax for the state.
States that Impose an Estate Tax
• Delaware
• District of Columbia
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Ohio
• Oregon
• Rhode Island
• Tennessee
• Vermont
• Washington
The exemption limit varies from $675,000 (for New Jersey) to $5,250,000 (for Delaware and Hawaii), while the tax rates range from 9.5% (for Tennessee) to 19% (for Washington).
Maryland and New Jersey also levy inheritance tax along with estate taxes.
What is the Estate Tax Exemption Gap?
The estate tax exemption gap refers to the difference between the estate tax exemption for a state and the exemption for federal purposes.
For example: In 2013, the federal estate tax exemption is $5,250,000, while the threshold for New York is $1,000,000, which creates a difference of $4,250,000 between the two exemptions.
Most states have lower exemption limits, which can make the transferred assets liable to, possibly unexpected, estate taxes from the state. It is advisable that individuals with significant transferrable assets consult their estate accountant regarding state estate taxes, taking into consideration the domicile state of the individual and their beneficiaries in order to have a proper estate plan in place.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
