The federal tax code exerts an outsized influence on public perceptions of virtually every area of tax law.
Perhaps that is understandable, given the wide applicability of that law. After all, its provisions apply across the nation and therefore affect more than 300 million people.
It should also be recognized, however, that tax laws in Massachusetts and other states sometimes diverge from their federal counterparts. In this post, we will discuss the extent to which this is the case with regard to estate taxes.
At the federal level, the trend in recent years has been to raise the income thresholds that trigger an obligation to pay estate taxes. In very simple terms, only very high-asset taxpayers generally need to be concerned about the applicability of estate tax obligations to their asset transfers.
But as the New York Times noted last week, not all states have gone along with this trend. There is still a significant subset of states – numbered at 16 by the Times – in which estate taxes carry considerable bite even for middle-class taxpayers.
In New Jersey, for example, the exemption amount for avoiding estate tax is the lowest in the country at $675,000. New Jersey also has an inheritance tax that applies to certain bequests.
Though New Jersey will be hosting the Super Bowl next week, it is still a northern state. The other states with estate taxes that often reach down into the middle class tend to be cold-weather states as well.
At least one of those states – New York – is considering changes to its estate-tax structure in order to help prevent its residents from migrating to states with warmer weather and lower taxes.
Source: The New York Times, “Some States Are Moving to Loosen Their Estate Taxes,” Paul Sullivan, Jan. 24, 2014