In 2013 Congress passed the American Taxpayer Relief Act. One of the provisions of that piece of legislation was making the federal estate tax exemption amount permanent at $5 million per person and indexing it for inflation.  With a federal estate tax exemption amount that high less than one half of one percent of Americans will need to worry about paying a federal estate tax upon their deaths. That does not mean that we need not worry about paying an estate tax though as many states have their own state estate taxes with exemptions far lower than the federal exemption amount of $5 million.

States are now trying to lure retirees into staying in their states and one way to do that is by minimizing the taxes the retirees will pay upon death.  Arizona is one of a handful of states that does not have a state estate tax, which makes it a great state to die in.  Other states such as New Jersey have state estate tax exemption amounts as low as $675,000.  With real estate values as expensive as they are in the state of New Jersey it would be very easy to exceed an exemption as low as theirs is.  In order to avoid having their estates subject to these state estate taxes many retirees find it advantageous to move to states that have higher exemption amounts or no state estate taxes at all, like Arizona.

Even though Arizona does not have a state estate tax it is still critical that your estate plan provide for the possibility that your estate could be subject to a state estate tax.  One example of how this still might occur, even though you are a resident of Arizona now, is if you were to get sick with dementia or Alzheimer’s and your children move you back to where they live, say New Jersey, and you pass away there.  Reality is that most of us have loved ones that live in another state and if we were to need 24 hour care we would end up being moved to where our loved ones live so they can watch over us and help us.  If that happens and your estate plan is not drafted properly you could end up being subject to the state estate taxes of the state you were moved to.

There are ways to minimize or even eliminate state estate taxes all together if you plan properly in your estate plan.  If your estate plan has not been updated or reviewed recently it is a good idea to have it looked at.  Legislation is constantly changing and it is imperative that you stay on top of these changes.

Contributed by MH Arrowhead, Scottsdale and Phoenix Estate Planning Attorney and Partner, David T. Eastman.

About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years.  Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects.  We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.