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How Clients' State Residency Affects Estate Taxes


When it comes to determing estate tax, the state where your client resides will impact how much they owe. In this article, Bryce Sanders of Perceptive Business Solutions goes over some estate planning strategies to consider for your client and summarizes the estate tax rules for every state.

Oct 18th 2021
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When considering estate taxes, where your client lives has a big impact on how much their estate will owe when they die. There are both state and federal estate taxes, and Congress is considering legislation that would change the federal rules. This article will look at how the state where your client lives (and where they die) plays a part. 

First, here are a few points for context:

  • You can’t take it with you. Wealth accumulated on earth will be taxed on earth.
  • Spousal transfers help. Generally speaking, wealth held jointly can transfer to the surviving spouse without triggering federal estate taxes.
  • Your client’s estate is like a giant IRA account. The federal government is patient: If they don’t get paid now, they’ll get paid later. (Actually, they prefer to get paid now and later.) Monies in your client’s retirement account might grow tax deferred, but they need to come out sometime, and when they do, the IRS expects to tax it. Your client’s estate works the same way. They might own assets that appreciate. They might never sell them. When your client dies, these assets become part of their taxable estate.
  • If your client can spend it or sell it, they own it. Everything in your client’s name is aggregated into their estate.
  • If your client controls it, they own it. Your client can reduce their taxable estate by giving away assets to charity. They can use their lifetime exemption to give assets to others; let them worry about the future appreciation. Your client can set up trusts. According to the IRS, a person owns assets if they can take them back and use them.

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