In 2015, there are still 20 U.S. jurisdictions that collect a death tax at the state level: Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, and Washington. Even if you don’t live in one of these states, the state estate tax may affect you in the future since many people move from time to time. It may affect your beneficiaries, because they may live or move to one of these states.
The following 2016 changes to state death taxes will be implemented:
- While Connecticut’s $2,000,000 estate tax exemption will not change in 2016, legislation was enacted in 2015 which caps the estate tax payable by any given estate at $20 million for deaths occurring on or after January 1, 2015.
- Delaware’s estate tax exemption matches the federal estate tax exemption which is indexed for inflation on an annual basis. Therefore, Delaware’s estate tax exemption will increase from $5,430,000 in 2015 to $5,450,000 in 2016.
- Keep an eye on the District of Columbia estate tax exemption – in 2015 the D.C. estate tax exemption is $1,000,000; however, a new D.C. law provides that the exemption will increase to $2,000,000 and eventually match the federal exemption when revenue surplus targets are met.
- Like Delaware, Hawaii’s estate tax exemption matches the federal exemption, so Hawaii’s estate tax exemption will also increase from $5,430,000 in 2015 to $5,450,000 in 2016.
- Maine enacted legislation in 2015 which will match its estate tax exemption to the federal exemption beginning in 2016. Thus, the Maine exemption will increase from $2,000,000 in 2015 to $5,450,000 in 2016.
- Maryland’s estate tax exemption will increase from $1,500,000 in 2015 to $2,000,000 in 2016 and will continue to increase annually until it matches the federal exemption in 2019. In addition, in 2019 Maryland will begin recognizing portability of its state estate tax exemption between married couples, including same-sex married couples. (Currently Hawaii is the only state that recognizes portability.)
- Minnesota’s estate tax exemption will increase from $1,400,000 in 2015 to $1,600,000 in 2016 and will continue to increase annually until it reaches $2,000,000 in 2018. In addition, married couples can take advantage of ABC Trust planning to defer payment of both Minnesota and federal estate taxes until after the death of the surviving spouse.
- New York’s estate tax exemption will be as follows for 2016:
- $3,125,000 for deaths between April 1, 2015 and March 31, 2016; and
- $4,187,500 for deaths between April 1, 2016 and March 31, 2017.
The exemption will then continue to increase until it matches the federal exemption in 2019. Aside from this, gifts of New York property made between April 1, 2014 and December 31, 2019 will be subject to a three year look-back period. This means that any gifts made during this time-frame will be brought back into the New York taxable estate if the person making the gift dies within three years of making the gift. If you anticipate making gifts of New York property or if you are a New York resident, you should consult with us about how much your estate will be exposed to the New York and federal gift and death taxes.
- The 2015 Rhode Island estate tax exemption is $1,500,000 and is scheduled to be indexed for inflation in 2016 and later years. Nonetheless, in this low inflation environment the Rhode Island Division of Taxation announced on October 22 that the estate tax exemption will remain at $1,500,000 for 2016.
- In 2016 Tennessee’s inheritance tax will disappear, bringing the number of U.S. jurisdictions that collect a death tax down to 19.
- Washington began indexing its estate tax exemption for inflation on an annual basis in 2014. The 2015 exemption is $2,054,000, but the 2016 inflation-adjusted exemption has not been released yet.
As you can see, the days of easily planning for estate taxes have significantly changed due to portability of the federal estate tax exemption and a myriad of state-level death taxes. If you have any questions about the best way to protect your estate from federal and state death taxes, please contact our office.