estate taxes at the state level
I’ve got a bunch of money sitting in IRA’s under my name. the federal estate tax exemption is high enough to not worry about (for now) but the state tax exemption is at a level to be concerning. We’ve been filing taxes on a ‘married filing jointly’ basis, so my question is: what triggers, ie., how does the state become aware of the fact that I’m gone and my spouse is now the recipient of $$ that exceed the state estate tax exemption level ?
Terry Says
Your IRA has a named beneficiary, likely your spouse — but could be anyone you name. That person receives the entire IRA free of any taxes, but with some obligations to withdraw the money over the subsequent 10 years (a relatively new ruling).
BUT all of the assets you own, including your IRAs and even your life insurance if you own it yourself instead of in an irrevocable trust, are considered part of your estate.
Many states have far lower estate tax triggers than the current $11.2 million at the Federal level. In Illinois for example, the current threshold for estate taxes is $4 million, and the tax rate starts at 28%. And that has caused many people to leave their current state of residence after retirement. It’s not just the income and property taxes that cause this decision. The state ESTATE taxes can take quite a bite.
Given how messed up many states are over the current unemployment situation, it’s understandable that you’d wonder how they would ever catch up with YOUR estate — especially if there is no probate required because everything passes through your revocable living trust or named beneficiaries. But who wants to fool around with that issue?? Assume they will know, and work with an estate planning attorney to deal with this issue.
