New York’s governor, Andrew M. Cuomo, took a step toward bringing the state’s estate tax in line with the federal one. And he is not alone among governors of cold-weather states (along with the District of Columbia) that have realized affluent residents are moving to states without estate taxes (and in some cases, income taxes) and in doing so, depriving their old state of the other taxes they paid, like property, sales and income tax.
With the federal estate tax exemption climbing to more generous levels, many states are considering a change in their own estate taxes. Why? Because taxpayers who are in the clear when it comes to federal death taxes may still be hit with state death taxes.
Will the states follow suit and drop draconian estate laws?
A recent article in The New York Times, titled “Some States Are Moving to Loosen Their Estate Taxes” suggests there may be hope.
Not all states, Texas for instance, have their own form of estate or inheritance tax, one separate from the federal tax that hits with a 1-2 punch. In fact, most do not. Still, more than a dozen states, mostly northern and Pacific ones, do have such a tax. Interestingly, these state estate or inheritance taxes can be troublesome for more than just the residents of the taxing state.
Unfortunately, the spaces between the federal tax and the state-level taxes can be sometimes tricky to navigate. Trickier still can be the space between two states. After all, “living” across state lines is not at all out of the ordinary, but having to think about entirely different tax schemes (sales tax aside) is generally less so. Moreover, as the original article elaborates, the states find themselves at odds and fighting jurisdictional battles.
Note: An important pattern may be developing, as more states loosen the rules and either eliminate the death taxes or make them as forgiving as the federal rate. New York and D.C. have recently begun reassessing their taxes, with many more either open to debate or actually winding them down.
Reference: The New York Times (January 24, 2014) “Some States Are Moving to Loosen Their Estate Taxes”