States are trying to solidify themselves as retirement destinations for seniors – which is why many states are lowering their estate taxes in coming years.
From Kiplinger:
In 2015, four states will increase the amount that’s exempt from state estate taxes, reducing or eliminating the tax that heirs will have to pay. On January 1, Tennessee’s estate tax exemption will jump to $5 million from $2 million, Maryland’s exemption will increase to $1.5 million from $1 million, and Minnesota’s exemption will rise to $1.4 million from $1.2 million. On April 1, 2015, New York’s estate tax exemption will increase to $3.125 million from $2.062 million.
More relief is on the way. Tennessee’s estate tax will disappear in 2016. Maryland and New York will increase their thresholds every year until 2019, when they’ll match the federal exemption (currently $5.34 million). Minnesota’s exemption will rise in $200,000 annual increments until it reaches $2 million in 2018.
In the past, most people didn’t have to worry about state estate taxes. Federal law provided an estate tax credit that reduced the federal tax bill by the amount paid in state estate taxes. In 2005, though, the credit was repealed, leaving big gaps between federal and state estate tax thresholds in the states that still had estate taxes on the books. The 2013 law that lifted the federal estate tax threshold to more than $5 million (adjusted for inflation) ensured that the tax remains a nonissue for the vast majority of taxpayers. But state estate taxes remain a real threat to some family legacies.
Why do states want so badly to become retirement destinations? The answer is simple: income tax revenue. But if taxes are too high, retirees won’t hesitate to leave.
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