Years ago, when we went camping at Anastasia State Park, one of our children had the brilliant idea of making a bear trap to protect us as we slept. This ingenious contraption consisted of strings tied to sticks hammered into the ground and arranged like a spider’s web. Unfortunately, nobody told Dad and the result was predictable, even though the existence of the trap was not. Many other unforeseen traps can catch us unprepared. Among these are issues of gifting and inheritance when family members live in multiple states. Every state is different in how they treat estates, inheritances, and individuals.
Pennsylvania is a good example. The state does not charge an estate tax, but it does have an inheritance tax. Spouses and children under 21 pay no tax, but other direct descendants can owe 4.5%. Siblings pay 12% and everybody else owes 15%. Real property and tangible assets left to out-of-state heirs also triggers taxes. New York only taxes estates over $5,930,000 for 2021, but there is a cliff formula that tells you whether or not you pay on the entire amount, or only on the amount that is over. Both of these situations can result in real money being lost from estates.
Similarly, we often see people move out of a low/no tax state to a very high tax state at the end of life. This is understandable, since many people want to be near their children and their children have jobs and lives that prevent them from leaving their own states. Nevertheless, thought should be given to the tax consequences before the move takes place. Given enough time and forethought, we can often achieve our ends without big hits to our savings.
We may need to consider a gifting plan and decide what types of assets to give. Some states differentiate between farmland and other assets, waving taxes on land left to state residents. Rather than share-and-share alike, careful attention should be paid to what assets should be left to whom. In some cases, the children may wish to change their state of residence, rather than their parent’s. Are there charitable goals that might be better achieved than through a dollar bequest? The list is long.
We are always available to discuss with you your goals and intentions. We probably have seen similar situations before and are happy to share with you the benefit of our experience. Sometimes, people say things such as “I didn’t want to bother you” or “I didn’t know that you could help with that.” Please feel free to ask, you are not bothering us, this is what we do and we love it. Remember, we are not attorneys, we do not practice law, and we must advise you to seek competent legal and tax advice first.