How to Minimize State Death Taxes
Each state has its own state death tax laws. These laws can be categorized by either state death taxes based on federal statutes or taxes based on each state's tax rates, credits and exemptions. The amount of inheritance tax due, if any, is determined on a state-by-state basis according to that state's tax laws.
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Instructions
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Consider the fact that life insurance purchased for the express purpose of paying inheritance taxes may only increase the amount of liquid assets. It is more valuable to keep sufficient assets to pay state death taxes.
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Watch for property that could be subject to possible multiple taxations. Intangible personal property such as bonds, insurance policies, stocks, mortgages, patents and copyrights may be subject to tax in the state of residence as well as any other state involved with the direct protection of the property.
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Limit the number of states involved by consolidating all properties in as few states as possible. To minimize the state death tax, you may benefit from creating revocable living trusts for intangible personal property.
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Explore the reciprocity laws in the state of nonresidence. Intangible personal property may be exempt, thereby removing the multiple taxation threat.
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Minimize state death tax by determining the distribution of the estate to the surviving spouse and children. This process requires the expertise of a tax accountant or an attorney with estate-planning experience. With the right planning, there may be no death or estate tax upon transfer of properties.
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Establish a trust, such as a charitable remainder trust, to minimize the amount of death tax on your estate. There are many options for designating the payout of such a trust. These options must be clearly defined by the estate owner to be valid upon his death.
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Make use of the GSTT (generation-skipping transfer tax). The GSTT is often referred to as the "death tax." See an attorney with expertise in estate planning to complete the required legal documents to establish your estate under the guidelines of the GSTT.
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Tips & Warnings
Many states are updating the laws concerning the death tax on estates. Check with local state officials or your attorney for the latest legislation.
Avoid shady schemes for planning the disbursement of your estate. Always use attorneys and tax accountants with reputations for integrity. The local Better Business Bureau (BBB) should be able to provide sufficient information to make a good choice.
