Episode 182: IN FOCUS: Planning for State Estate Taxes with Bruce Steiner (Kleinberg Kaplan)

Bruce.

Thanks, Jonathan, and thanks for having me back once again.

As Jonathan said, we're going to talk about state estate taxes, which is the flip side of what I've done many times, which is state income taxes.

But we rarely see or hear anything about state taxes, and yet 12 states and the District of Columbia have them, and five states have state inheritance taxes.

By way of background, we all know the federal estate tax has a $15 million exempt amount called an exclusion amount, and that's indexed for inflation.

So it will continue to go up unless Congress does something about it.

There's portability for the federal estate tax exempt amount.

So if I have $15 million and my spouse has $15 million and I leave everything to her and she files an estate tax return for me and now she inherits my exempt amount and she has a whole $30 million exempt amount.

There's also a GST exemption of $15 million, and there's no portability for the GST exemption.

So if I'm worth 15 and she's worth 15, I'm going to leave my 15 in trust for her to get my GST exemption and her GST exemption.

Q-tip elections.

We're now allowed to make Q-tip elections even if they're not necessary to reduce or eliminate the federal estate tax because people might want a second basis to step up in the spouse's estate.

But now let's swing over and talk about the state taxes.

There are 12 states and D.C. have them, as I mentioned.

Except for Connecticut, the exempt amount is less than $15 million.

So you've got to do your planning with a different exempt amount.

So if I'm in a state where the exempt amount is less than $15 million, which is the other 11 in D.C., and I have a credit shelter trust and I leave $15 million to the credit shelter trust, I'm going to be paying state estate tax, possibly a million or two of state estate tax.

The rules that govern Q-tip elections and alternate valuation elections are also, they vary among the states.

There's no one way that they all do it.

It's not like the pre-2002 state-to-state tax where every state had a state estate tax, and in every state, the state estate tax was equal to the federal, to the state death tax credit against the federal estate tax.

Once the state death tax credit went away, states went in all different directions.

38 states got rid of their state estate tax, either immediately or subsequently.

And in the other 12 states, they've made changes to them.

So they work differently.

We're going to talk about some of the differences.