2015 U.S. State Death Taxes – A Primer on Where They’ve Been and What’s Changing

As the U.S. federal estate tax exemption continues to increase to astronomical levels (the 2015 exemption will be $5,430,000 per person), several U.S. states that collect a death tax are either trying to become more attractive tax-wise to retirees, blowing it all out and keeping pace with the federal exemption, or making the state death disappear once and for all.

While the following U.S. states will collect some form of a death tax in 2014 – Connecticut, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, and Washington –in 2015 the following eight states will see changes to their state death tax laws:

   Delaware enacted an estate tax that was only supposed to be around between July 1, 2009 and June 30, 2013. Instead, the Delaware legislature acted in the spring of 2013 to keep the estate tax up and running and it is still being collected today.  The Delaware exemption is adjusted for inflation each year so that it matches the federal exemption, so in 2015 the Delaware exemption will be $5,430,000, up from $5,340,000 in 2014.  Refer to Overview of Delaware Estate Tax Laws for more information.

◊   Hawaii enacted an estate tax that went into effect on May 1, 2010.  Back then the exemption was only $3,600,000, but in May 2012 the Hawaii legislature tweaked the estate tax laws to tie the Hawaii exemption to the federal exemption for deaths occurring after January 25, 2012.  Therefore, the 2015 Hawaii exemption will be $5,430,000, up from $5,340,000 in 2014.  Note that Hawaii is also the only state that currently recognizes portability of its exemption between married couples.  Refer to Overview of Hawaii Estate Tax Laws for more information.

◊   Maryland has had a $1,000,000 estate tax exemption for many years.  However, in May 2014 the Maryland legislature made significant changes to the estate tax laws, including increasing the exemption on an annual basis until it matches the federal exemption in 2019.  Therefore, in 2015 the exemption will increase to $1,500,000.  Aside from this, Maryland will begin recognizing portability of its estate tax exemption between married couples in 2019.  Refer to Maryland Estate Tax Changes Go Into Effect in 2015 for more information about the 2014 legislation.

◊   Minnesota made some crazy changes in 2013 by enacting a state gift tax which was then retroactively repealed in 2014.  In addition, the estate tax exemption was retroactively increased from $1,000,000 to $1,200,000 for 2014 deaths and the estate tax rate was modified so that the first dollars are taxed at 9% and maxes out at 16%.  The estate tax exemption will then increase in $200,000 increments until it reaches $2,000,000 in 2018, so the 2015 exemption will be $1,400,000.  Finally, married couples can now use ABC Trust planning to defer the payment of all estate taxes until after the death of the second spouse.  Refer to Overview of Minnesota Estate Tax Laws for more information.

◊   New York joined the mix of states making changes to estate tax laws in April 2014.  And of course New York had to do things a little different.  Instead of making it easy and having the changes go into effect either retroactively back to the first of the year or not beginning until 2015, the New York exemption is $2,062,500 between April 1, 2014 and March 31, 2015, and then increases to $3,125,000 between April 1, 2015 and March 31, 2016.  The New York exemption will then continue to increase until it matches the federal exemption in 2019.  Refer to Overview of Changes to the New York Estate Tax Exemption Between 2014 and 2019 for more information.

◊   Rhode Island increased its estate tax exemption from $675,000 to $850,000 for deaths occurring in 2010 and began adjusting the exemption for inflation on an annual basis for deaths occurring in 2011 and beyond.  Nonetheless, in June 2014 the legislature was at it again, and so the Rhode Island exemption will increase from $921,655 in 2014 to $1,500,000 in 2015, and the exemption will then be adjusted annually for inflation in future years.  Refer to Changes are Coming to Rhode Island Estate Taxes in 2015 for more information.

◊   Tennessee acted in May 2012 to repeal its state gift tax retroactively to January 1, 2012 and phase out the state death tax by 2016 (note that the Tennessee death tax is referred to as an inheritance tax in the Tennessee statutes, but its really an estate tax).  The Tennessee inheritance tax exemption will therefore increase from $2,000,000 in 2014 to $5,000,000 in 2015.  Refer to Overview of Tennessee Inheritance Tax Laws for more information.

◊   Washington tweaked its state estate tax laws in June 2013 in several ways.  First, the $2,000,000 is now indexed for inflation annually.  Therefore, the exemption will increase from $2,012,000 in 2014 to $2,054,000 in 2015.  Second, the estate tax rates for the top four brackets were increased by one percentage point so that the top rate is now 20% for taxable estates valued at least $9,000,000.  Finally, certain family-owned businesses now receive an estate tax exemption of up to $2,500,000.  Refer to Overview of Washington Estate Tax Laws for more information.

For more information about U.S. state death taxes, refer to the following:

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Where Should You Retire? It Depends on Who You Ask

A recent survey conducted by MoneyRates.com used the following factors to determine the list of the best and worst U.S. states for retirees:

  • The size and growth of the senior population
  • Economic factors
  • Crime
  • Weather
  • Life expectancy at age 65

Based on these five factors, Moneyrates.com found that the top ten states for retirees are as follows:

  1. Hawaii
  2. Iowa
  3. Idaho
  4. Florida
  5. Vermont
  6. Arizona
  7. Colorado and Maine (tie)
  8. Virginia
  9. Montana
  10. New Hampshire

Hmm.  Back in May, a similar survey conducted by Bankrate.com didn’t have Hawaii or Florida ranked among the top ten.  In fact, Hawaii didn’t even make the top twenty or thirty – Hawaii ranked #46 – and Florida barely made it into the top thirty – Florida ranked #39.

The factors Bankrate.com used to compile its list were as follows:

  • Cost of living
  • Crime rate (violence and property crimes)
  • Health care quality
  • State and local tax burden
  • Personal well-being
  • Weather

Using these six factors, below are the top ten U.S. states for retirees according to Bankrate.com’s survey:

  1. South Dakota
  2. Colorado
  3. Utah
  4. North Dakota
  5. Wyoming
  6. Nebraska
  7. Montana
  8. Idaho
  9. Iowa
  10. Virginia

So where should you retire?  Wherever you feel the most at home.

Photo: Aerial View of Hanalei National Wildlife Refuge, U.S. Fish and Wildlife Service

Writer Tom Clancy’s Will Demonstrates Clear and Present Danger of Estate Planning for a Blended Family


OK, I admit it.  Back in the day I read all the Tom Clancy novels – The Hunt for Red October, Red Storm Rising, Patriot Games, Clear and Present Danger, The Sum of All Fears – and saw all the movies (and yes, I read the books before I watched the movies).  How else would I have learned about Russian MiG 29s,  U.S. F-14 Tomcats, CENTCOM, and PACOM?  But while Mr. Clancy’s stories were full of international espionage and meticulously detailed military information, unfortunately his last will and testament and particularly his second codicil, drafted by a Baltimore estate planning attorney, lacked the precision of his own writing.

Mr. Clancy died from heart failure on October 1, 2013, at the age of 66.  He left behind his wife, Alexandra Clancy, a young daughter, and four adult children from his first marriage.

Mr. Clancy’s will and two codicils were filed for probate in Baltimore City, Maryland, on October 10, 2013.  The probate docket indicates that the author signed his 21-page will on June 11, 2007, and two short codicils totaling a mere three pages on September 18, 2007 and July 25, 2013.

According to a partial estate inventory filed in January 2014 and a supplemental inventory filed in September 2014, Mr. Clancy’s estate is estimated to be worth $83 million.  His largest asset was a 12% ownership interest in MLB’s Baltimore Orioles, estimated to be worth $65 million; he also had multiple real estate holdings (including a $7 million estate overlooking the Chesapeake Bay which went to his wife through joint ownership), $10 million in business interests, and, while it may seem odd it’s certainly not unexpected, a rare, operating World War II tank.

While several of the real estate holdings passed to Mr. Clancy’s wife through joint ownership with rights of survivorship (along with other jointly held investments which are not part of the probate estate), Mr. Clancy’s intent for the remainder of his property was for it to be divided among three distinct trust “buckets”:

  1. One-third in a marital trust for the benefit of his wife;
  2. One-third in a  family trust for the benefit of his wife and all his children; and,
  3. The balance in trusts for the benefit of his four adult children as well as grandchildren.

This sounds like a reasonable plan for the author’s blended family, doesn’t it?

But lurking in this type of plan for a blended family and a substantial $83 million estate is the impact of estate taxes – both federal and Maryland (when Mr. Clancy died, the federal estate tax exemption was $5.25 million and the Maryland estate tax exemption was a measly $1 million).  The total estate tax bill is estimated to be $16 million, and the Personal Representative of the estate, Baltimore estate planning attorney J.W. Webb (who drafted the July 2013 codicil – more on that below), has taken the position that trust bucket #2 (the family trust) should pay $6 million of the tax bill and trust bucket #3 (the children’s trusts) should pay $10 million of the tax bill (note that trust bucket #1, the marital trust, is designed to defer payment of estate taxes on its value until after Alexandra Clancy’s death).  But according to the “Petition for Declaratory Judgment, Construction of Will, and Removal of Personal Representative” filed in early September by Alexandra Clancy’s attorneys, the widow believes that the intent of the July 2013 codicil was to confirm that trust bucket #3 – the trusts for the benefit of Mr. Clancy’s four children from his first marriage – should pay the entire $16 million estate tax bill, thereby leaving trust bucket #2 completely intact.  Mr. Webb has so far declined to comment on the petition and has until October 17 to file his response.

International intrigue?  Not even close, just a typical day in probate court, and yet another example of celebrity estate planning gone wrong.  In addition to the questionable language in the July 2013 codicil, had Mr. Clancy created and funded a revocable living trust instead of relying on a will and some codicils as the governing documents of his estate plan, then the intimate details of the writer’s final wishes would have remained a private family matter.  In fact, this surprised me since 10 years ago I practiced as an estate planning attorney in Bethesda, Maryland, and my firm was (and still is) a firm believer in revocable living trusts.  And since this was (and still is) the case for other Maryland estate planning firms, why an estate planning attorney with a big Baltimore firm would use a will instead of a trust is beyond me.

Aside from this, the Clancy estate battle also demonstrates how tricky it is to plan for a blended family.  What was the author’s true intent?  Unfortunately we will never know, and after significant time and money have been spent, a probate judge will end up making the final decision.

Lawmakers Consider Changes to New Jersey’s Death Tax Laws

New Jersey is one of those rare states that collects not just one, but two death taxes.  First, New Jersey residents are subject to a death tax on their estate if the value exceeds a measly $675,000 – this is called the New Jersey estate tax.  Second, certain relatives and all non-relatives who inherit from a New Jersey resident (including brothers, sisters, nieces, nephews, and friends) are subject to a death tax on the amount they inherit – this is called the New Jersey inheritance tax.

Both Indiana and North Carolina repealed their state death taxes in 2013.  In addition, multiple states have tweaked their state death tax laws over the past few years to make them, well, for lack of a better phrase, less taxing – this includes Maryland, Minnesota, New York, Rhode Island, Tennessee (where the state death tax will go away for good in 2016) and Washington.  With all of these recent favorable state death tax moves, it should come as no surprise that New Jersey lawmakers are considering changes to their state’s death tax laws since New Jersey not only collects two death taxes, but also has the lowest estate tax exemption by nearly $250,000 (the state exemptions currently range from $921,655 in Rhode Island – which will increase to $1.5 million beginning in 2015 – to $5.34 million in Delaware and Hawaii).

While Governor Chris Christie supports raising the estate tax exemption to $1 million, some lawmakers would go as far as to completely repeal both death taxes, while others would raise the estate tax exemption to match the federal exemption (which is currently $5.34 million; this is the route that both Maryland and New York have taken).  According to Ashlea Ebling of Forbes, there are currently 21 bills that have been introduced to make changes to New Jersey’s estate tax, inheritance tax, or both.  Nonetheless, with New Jersey’s well-publicized budgetary problems and death taxes bringing in $700 million in revenues annually, it appears that the death tax debate is raging at the wrong time.

So will lawmakers be able to make death less taxing in New Jersey?  I predict that at the very least the estate tax exemption will be increased to $1 million, but the inheritance tax will remain untouched.  Stay tuned to see if I’m right.

Photo: John Francis Bongiovi, Jr., known publicly as Jon Bon Jovi, a New Jersey native

Can You Establish the Validity of Your Will or Trust Before You Die?

If you’ve made the tough decision to disinherit a child or other relative in your estate plan, then chances are you’ve increased the likelihood that your decision will be challenged after you die.  But what if you could head off the challenge before you die?  A handful of U.S. states now allow for just that – a legal process that lets you validate your will or trust while you’re still alive and kicking – you can do this in Alaska, Arkansas, Delaware, New Hampshire (which just passed its law in July 2014), Nevada, North Dakota and Ohio.

While the pre-death process for validating a will or trust varies, in general the steps involved are as follows:

  1. Named beneficiaries of the will or trust and disinherited heirs are notified of the existence of the will or trust and its contents.
  2. Named beneficiaries and disinherited heirs then have a limited number of days (from 30 to 120 days depending on state law) to bring a legal court challenge to the will or trust.
  3. If a legal challenge is not filed within the applicable time period, then the named beneficiaries and disinherited heirs are barred from challenging the contents of the will or trust after the testator or trustmaker dies.

The driving theory behind this process questions why you should have to wait until after your death to let your family challenge your estate planning decisions since you won’t be around to defend your actions.  Instead, you should be able to force the issue while you’re alive and well and fully capable of defending your decisions.

But while the pre-death validation of an estate plan may look good on paper, there are several questions about the process that remain unanswered:

  • What happens if you go through the process but later decide that you want to change your estate plan?  Then you’ll most likely have to go through the process again, and if you don’t then you’ll leave the door open for a post-death challenge of the revised plan.
  • Will the pre-death process carried out in a state that permits it stand up in a state that doesn’t?  For example, you could go through the process in one of the states that only allow residents to take advantage of it, but then move to a state that doesn’t recognize it.
  • What about real estate that you own in a state that doesn’t recognize the process?  The laws of the state where real estate is located generally dictate what happens to the property after death, so while your disgruntled heirs will be barred from challenging your final wishes in your home state, they may still be able to challenge the distribution of your out of state real estate after your death.
  • What if the person who pre-validates their estate plan later marries, divorces, or has more children, or what if a beneficiary named in the estate plan dies?  Will the plan need to be validated again because a new beneficiary has come into play?

These are just a few examples of how the pre-death validation of a will or trust could end up being a waste of time and money.  So while these laws may look good on paper, the process appears to have quite a few kinks that need to be worked out before it becomes a practical solution to head off a will or trust contest.