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VOL. 129 | NO. 227 | Thursday, November 20, 2014

Dana and Ray Brandon

Estate Planning and State Taxes

By Ray and Dana Brandon

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Ray’s take: A lesser-discussed aspect of estate planning is state inheritance taxes. Some states have tax separate and in addition to federal estate taxes. And to make it even more confusing, some states collect estate taxes and some states collect inheritance taxes, while two states collect both.

So what is the difference between the two? They seem to be the same thing using different words. An inheritance tax is based on who receives a deceased person's property and how the beneficiary is related to the deceased person, while an estate tax is based on the value of the deceased person's estate and not on who gets what. For example, in an inheritance tax state, a spouse usually gets an exemption based on the relationship.

Mississippi and Arkansas do not collect either. Tennessee has an inheritance tax. However, as a result of changes enacted in 2012, the state of Tennessee is phasing out its inheritance tax through 2015, when the exemption amount will be $5 million ending with full repeal in 2016.

If a decedent owns property in another state that does have either an inheritance tax or an estate tax (or both), then that property will be subject to the laws of that state.

It’s important to be aware of the tax laws in those states and how it may affect your heirs. It’s no wonder that individuals with sizable estates think carefully about where they want to be living when they die!

Because of the moving target of state inheritance tax laws, estate planning is more challenging. As tax regimes change, so do the planning strategies to get the best results. It is important to consult the appropriate professionals who can guide you regarding estate planning and state taxation.

Dana’s take: So what about that vacation property you are considering purchasing in Florida or Gulf Shores or any other location that you have loved to visit for many years? How will the state taxes affect your heirs down the line and does it make a difference in where you plan to buy that home away from home?

We already know that the state tax laws are ever changing, so it could be difficult, if not downright impossible, to determine tax issues far into the future.

While it’s important to be aware of and include any financial issues in purchases – be they large, like real estate, or smaller, like a car – as long as you know that you have considered the possibilities and implemented your best plan for the future, you should feel confident in making purchases that fit in with your overall financial plan.

Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at raybrandon@brandonplanning.com.

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