Are you living in the friendliest state for estate taxes?

Written by Greg Owens, Sr. Financial Planner, WMAS

What seems like a simple question can actually become quite complex when state, federal and estate taxes are figured in. Most people have a home state where they live, vote, hold a driver’s license, and file their taxes. When they pass away it will likely be the state that will want to administer the estate, and in some cases tax the estate.

Many of our clients, however, have homes in more than one state. That likely could include Arizona, California, or Hawaii. Each of these states–along with Washington, Oregon, and Idaho–has a different state estate tax rate. How much time you spend in each location, as well as certain other factors, will determine which state will try to “claim” your estate as theirs.

For instance, Washington, Oregon and Hawaii all have their own estate tax in addition to the federal estate tax. California, Arizona and Idaho do not. For example, if you have a home in Seattle and a home in Palm Desert, the state of Washington will want to tax your estate, unless your estate can prove that you lived in California when you passed away.

Below is a very general comparison of what a $10 Million estate could look like in Washington, Oregon and Idaho after taxes:

This represents a sizable difference in total estate taxes by officially living in one state versus another. However, there is another issue at play – Idaho, Arizona and California all have a state income tax. If you officially move to California to avoid the estate tax in Washington, you could then pay a significant amount in state income tax over your lifetime, depending on your earnings and how your assets are invested. In fact, quite possibly you could pay in state income taxes what you avoided in Washington state estate tax, depending on your length of residency.

Each state has a threshold for what determines residency, and if you are contemplating a move to a state without estate tax, it is a complex decision with many variables. It is critical to focus on the larger picture of investment and tax considerations that will ultimately impact your legacy and estate, and to involve your financial and legal advisors in this discussion to avoid costly errors.

 

Washington Trust Bank Wealth Management & Advisory Services
Washington Trust Bank believes that the information used in this study was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.

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