Your Estate Plan Should Include State Taxes

Where you retire and how you set up your estate can make a big financial difference for you and your heirs. Each state and location can choose to levy estate taxes, so where and how you retire can increase or decrease the amount of wealth you pass on. When discussing your estate plan with professionals, ask questions to understand where the best jurisdictions for setting up trusts and other legal structures may be.

Jurisdictional estate taxes, which are levied by 19 states and the city of Washington, D.C., range as high as 19 percent. In the wrong jurisdiction, state taxes will eat up close to a fifth of your estate before your children or grandchildren can benefit from the wealth you leave behind. Luckily, Florida is considered one of the best states for retirement due in part to low or no taxes on estates.

Regardless of where you live or set up your estate structures, funds and assets may be susceptible to federal estate taxes. In the past, federal taxes were a prime consideration for financial advisors. With an exemption as high as $5.25 million and numerous ways to shelter funds, however, advisors and individuals can concentrate on other issues.

Tips for achieving the most positive estate outcomes include retiring in a state that doesn’t tax estate assets or setting up a revocable living trust. In some cases, such trusts can provide credit and tax shelters as money is transferred to heirs upon death. Some estate-planning tools can be set up outside of your own state to avoid hefty tax bills.

Ensure you understand the legal and financial ramifications of any estate administration or planning decision. Poor estate planning can leave you wanting in later years. It can also place a heavy administrative or financial burden on your children.

Source: The Wall Street Journal, “Pay Attention to State Estate Taxes” Michael Foltz, Dec. 15, 2013