State Estate Tax
I read an interesting article recently in the Wall Street Journal titled “Death Tax Defying.” The article discussed the idea that estate tax repeal is gaining momentum among states. According to the article: "Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. Indiana's legislature recently passed by big margins a bill to phase out its death tax by 2021, and Governor Mitch Daniels signed it this week. Heated debates are going on in Tennessee and Nebraska over the issue. Even in Oregon taxpayer groups are attempting to put an initiative on the November ballot to abolish the death tax, and polls show it could win."The theory is that the wealthy re-locate to avoid the state estate tax and thus the tax actually has the effect of lowering overall revenue for the state. A study referenced in the article compared Tennessee and Florida (which has no estate tax) finding: “the estate tax cost Tennessee state and local governments over $7 billion in tax collections.” While I would question how many people actually “re-locate” from Tennessee or other states like it, I don’t doubt that many would choose not to “locate” there as a result of higher taxes.While I hope eliminating the estate tax is the way of the future, there also appears to be several states going in the other direction and “de-coupling” from the federal estate tax exemption and establishing a lower estate tax exemption amount. The take away is that it is important to consider the impact of state tax law on any estate planning. Failure to properly plan for a state with a lower exemption could have serious consequences.