The Big, Beautiful Bill Doesn’t Protect Against Big, Ugly State Death Taxes
From a recent 911 call transcript…
Operator: This is 911. What’s your emergency?
Caller: I need help! I just broke my leg because a car hit me on Susquehanna Street!
Operator: Can you please spell Susquehanna?
Caller: [after a pause] Hold on a minute while I limp over to Main Street.
Location can dramatically affect an outcome. This is especially true for high-net-worth clients who may be protected by the recently passed $15,000,000 federal transfer tax lifetime exemption but live in or have property in a state that imposes its own death tax.
Washington is a good example. The “Ever-green” State is turning bright red as it anticipates a $16 billion annual budget deficit. In response it recently passed a comprehensive tax overhaul package. Even after an increase in its death tax lifetime exemption, the estate of domiciled taxpayers dying after July 1, 2025, can only protect the first $3,000,000 of state-based assets, the rest being subject to a progressive tax rate that tops out at 35% on amounts over $9,000,000.
To illustrate the potential exposure: Next year a single taxpayer with a net worth in Washington assets around $15,000,000 may avoid any federal transfer tax but could still anticipate a state tax of over $4,000,000!
Two planning resources: First, check to see if the state in question has a death tax. Over half of them do! A good point of reference is John Hancock’s Know the Law portion of its website at Tools and Calculators for Advanced Markets.
Next, if there is a state tax concern, and certainly if there is a potential federal tax, call us for an easy-to-understand, two-page death tax estimate to use with your client and any advisors. All we need is marital status, approximate net worth, state of domicile, and two suggested net rates of growth for the estate.
It may prove worthwhile finding ways for all or part of that taxable estate to limp over to a kinder and gentler jurisdiction.
Beyond that, the most common planning device for dealing with unavoidable anticipated taxes is the use of life insurance to pay the bill, usually held outside the taxable estate in an irrevocable trust. We will assist in talking with you to your clients and their legal and tax advisors about the opportunities they have to minimize estate and gift taxes. Call Tom Virkler at 706-614-3796 or tom@cpsadvancedmarkets.com.
For What It’s Worth: In 2022 a study by the Vera Institute of Justice reported that Seattle, WA, had one of the highest percentages of 911 calls relating to violent crime. There is no data yet to determine if the hike in the death tax has affected that one way or the other.