For the unwary, state estate and inheritance taxes can come as a big surprise. That’s going to be especially true as families think they can get away without planning now that the federal estate tax only hits individuals who die with more than $5 million in assets ($5.25 million for 2013, indexed for inflation). But 21 states and the District of Columbia have estate and/or inheritance taxes on the books for 2013, and in some cases they kick in on the first dollar.
“The thing that makes state estate tax so sinister is it’s underneath peoples’ radar, but it’s got a sharp bite,” says Martin Shenkman, an estate lawyer in Paramus, N.J. “If you have under $5 million, you’re not necessarily out the woods.” Say you die with $2 million in your name and a plan to leave everything to your children, the state tax bite would be $99,600, calculates Ira Herman, a CPA with Cohn Reznick in Roseland, N.J. “Who wants to write a check for $100,000 to the government,” he quips. (For how delayed nuptials cost a couple $214,000 in New Jersey inheritance tax.)Still in many cases, you can make the state tax bill go away with a little planning. Here’s help.Read more