Beware the Snare - State Estate Tax on the Rise

Category: Estate and Inheritance Tax

Rejoice! It is almost 2006, and the federal estate tax exemption will increase from $1.5 million to $2.0 million per person - that is $4.0 per married couple with a tax advantaged estate plan. Hooray! No more taxes! ....

But wait - this is the Federal exemption from estate taxes. What about the State where you live (or own real estate)? 24 States and the District of Columbia have a State level death taxes - which are imposed by the State taxing authority, not the Federal government. Depending on the tax rates imposed by each State, your total "death tax" bill may be going up in 2006, not down.

While the Federal Exemption for Estate tax is $2.0 million, many states have a lower exemption level (including both New Jersey and New York):

If your State is not on this list, should State Estate Taxes still be a concern for you? Yes, if you own real property in any State on these lists. Real property is subject to the estate tax laws of the State in which it is located; all other property is subject to the estate tax laws of the State in which you reside.

$2 Million State Death Tax Exemption:

• Connecticut
• Washington

$1 Million State Death Tax Exemption:

• District of Columbia
• Kansas
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oklahoma
• Oregon
• Tennessee

$675,000 State Death Tax Exemption:

• New Jersey
• Rhode Island
• Wisconsin

Other State Death Tax Exemptions:

• Indiana ($100,000 per beneficiary)
• Nebraska ($10,000 per beneficiary)
• Ohio ($338,333)
• Pennsylvania ($3500 per household)

Thank you Mr. Binger - Single Estate Tax Payment = 1/7 Minnesota's Budget Surplus

Estate Planning, Estate and Inheritance Tax

The State of Minnesota got an unexpected boon this year - to the tune of an unanticipated state estate tax payment of $112 million (note this is just the estate tax payment to Minnesota; the federal estate tax payment would be separate and above). This payment alone put the state into surplus territory for the year - The estate tax payment is so large it equals one-seventh of the state's projected 2006-07 budget surplus of $701 million.

The who's, how's and why's of the situation are sketched below and detailed by the Minneapolis St. Paul Star Tribune:

Who: James Binger, former chairman of Honeywell, theater entrepreneur and onetime part owner of the football Vikings, who died in November 2004 at age 88.

How: Apparently, Mr. Binger intended to be charitably generous with his estate, but to focus on end-of-life medical research, not to necessarily benefit the State. Shortly before his death he changed a $200 million bequest from a private foundation to a long-time business associate and friend.

Why: A private foundation creates a tax deduction; a friend creates a tax liability. The last minute will modification changed his charitable beneficiary from the foundation to the State of Minnesota - whose residence should give thanks to Mr. Binger for his unexpected holiday gift.

Post-Mortem Planning Taken Too Far - False Estate Tax Return = Jail Time

Category: Estate and Inheritance Tax

Filing a false estate tax return can land you in jail.

From OA Online News, an Odessa Texas attorney, Stephen C. Ashley, took the idea of post-mortem planning in his father's estate a little too far when he created backdated gift deeds falsely reflecting that his father had deeded some of his ranch to his sons before he died, having them falsely executed and notarized.

"�We all own the responsibility to deal with the government honestly,� [Assistant U.S. Attorney John S.] Klassen said. [U.S. District Judge Robert] Junell then sentenced Ashley to two concurrent two-year prison terms for filing a false U.S. Estate Tax Return and unlawfully conspiring to defraud the IRS in its efforts to collect estate taxes. "