Discussion:Moving to Avoid the Estate Tax
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| {{ForumReplyPost|UserID=KatieJ|Date=1 November 2009|Text=Thanks for that link, D&T. Interesting indeed. One thing the article doesn't mention is that before 2005, almost all states imposed a "pick-up" or "sponge" estate tax that claimed for the state the maximum credit that was allowed against the federal estate tax for state death or generation-skipping transfer taxes. Most of those laws are still on the books (California's is, CRTC Sec. 13302), but since the federal credit was repealed for decedents dying after 2004 and replaced with a deduction for state death taxes, the state pick-up tax law produces no revenue. Just about every one of the white states on that map (states with no inheritance or estate tax) actually does have an estate tax, but it's effectively repealed due to the federal law change.}} | {{ForumReplyPost|UserID=KatieJ|Date=1 November 2009|Text=Thanks for that link, D&T. Interesting indeed. One thing the article doesn't mention is that before 2005, almost all states imposed a "pick-up" or "sponge" estate tax that claimed for the state the maximum credit that was allowed against the federal estate tax for state death or generation-skipping transfer taxes. Most of those laws are still on the books (California's is, CRTC Sec. 13302), but since the federal credit was repealed for decedents dying after 2004 and replaced with a deduction for state death taxes, the state pick-up tax law produces no revenue. Just about every one of the white states on that map (states with no inheritance or estate tax) actually does have an estate tax, but it's effectively repealed due to the federal law change.}} | ||
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| + | {{ForumReplyPost|UserID=Dennis|Date=1 November 2009|Text=Actually, Katie, they don't. The whole point of the sponge tax was that the states were effectively taxing the Federal Government not their deceased residents. }} | ||
Revision as of 19:18, 1 November 2009
Discussion Forum Index --> Basic Tax Questions --> Moving to Avoid the Estate Tax
Discussion Forum Index --> Tax Questions --> Moving to Avoid the Estate Tax
| 31 October 2009 | |
| At what point do you advise a client to relocate to avoid estate taxes? Ultimately, that is a personal decision, but if money can be saved, why not? | |
Floridacpa (talk|edits) said: | October 31, 2009 |
| The client could be subject to US taxes for up to ten years - depends on the situation (assuming they move to another country and give up US citizenship). | |
| 31 October 2009 | |
| Not relocating to another country - although that is an idea! Just moving to a state without any death or inheritance taxes. | |
| 31 October 2009 | |
| Just to be clear Floridacpa is out of the date as the Jobs Act was replaced by Heart Act expatriations in 2008. For some people these are really good ways to avoid US estate taxes... | |
| 31 October 2009 | |
| Seems to me it's a question of whose money the client would be saving -- once I'm dead and gone, it's not my money, it's my heirs' money, and how much do I care how much they get? With any luck I'll live long enough to use it all up anyway <G>. My point is that moving to another state is not an easy thing for older people to do, and in order to make this work, the client must make a clear change of domicile. You can only have one domicile at a time, but states may argue over which is a person's true domicile. Most of the litigation over domicile has been in the context of estate or inheritance taxes. Think of Howard Hughes and Marilyn Monroe, for example. So the client has to REALLY move to the new state and make it his permanent, primary home. No keeping ties in the former state and running back and forth. If the children and grandchildren are back in the old state, Grandma and Grandpa are likely to tell you one thing and do another <G>. On the other hand, if they'll be moving to a state where they have family members and other connections already, it's more likely to be successful.
So, why not? Personal, family, emotional reasons. Moving is inconvenient and expensive, but the major costs may be non-monetary. The question is whether it is really worth it to the client to go to the trouble and expense of moving, to say nothing of going to a new place where they have no friends, no family, no connections and start over, just to save some tax money for their heirs. Let them enjoy the rest of their lives and the heirs take the consequences. | |
Death&Taxes (talk|edits) said: | 31 October 2009 |
| The complexities that can occur when the client moves, but retains ties to the old state, can be see in the famous Dorrnace matter: http://openjurist.org/296/us/393/hill-v-martin-dorrance. Two states claimed he was domiciled in their state.
Here in New Jersey, many become residents of Florida, snow-birds if you will, returning here when it is too hot there in summer. It can take years to sever ties, if they ever do it, and it can become complicated by Section 121 of the IRC, for often they keep the house here. If the suggestion is to be taken seriously, invite the whole family to a conference and let them know about the suggestion that Mom and Dad move to Texas or Florida, and the reasons behind it. | |
| 31 October 2009 | |
| Oh, I almost never disagree with D&T, but I have to do it this time <G>. It is not the children's business what Mom and Dad do. It is up to Mom and Dad ONLY. I wouldn't bring the adult children into this discussion unless the clients insist. Their interests and their parents' interests in this matter are potentially in conflict, and Mom and Dad can easily feel pressured to make a decision that will really make them unhappy.
I'm the Mom/Grandma. It is not up to my children and grandchildren what I do with my money or how (or whether) I leave it to them. It's up to me. Period. | |
Death&Taxes (talk|edits) said: | 31 October 2009 |
| I'm a Grandpop by second marriage too, Katie.
Often times I hear from retirees fresh from a talk with their financial advisors, hearing dollars and sense advice from wise people but people, none the less, who haven't a horse in the race if you will. They hear about the money to be saved down the road and don't want to disappoint heirs. Often it is the heirs who are aghast that Mom and Dad want to move away. I was hoping an advisor who suggested bringing in the family wasn't doing so to bolster the case but rather to listen. And many times, it is the elders who pick up magazines like Money, or read Spidell's Elder Care Letter, and get ideas in their head! By the way, ever suggest those over 70 and not in high brackets take more than a minimum distribution from their IRA? Too often I hear "I want it to go to Jamie or Jill." | |
| 1 November 2009 | |
| Well, that's for Mom and Dad to decide, not for the kids. There are many families like the ones you describe, my own included, but I know all too many families where one or more of the adult children are truly acquisitive and if someone put the idea into their heads, would put a lot of pressure on their parents. | |
| 1 November 2009 | |
| The states will need more money, not less. So, someone who moves would need to examine carefully which way the wind is blowing before making the decision. I am not suggesting that states that don't have an estate or inheritance tax might adopt one, but you never know. There are more ways than that to raise taxes. | |
Death&Taxes (talk|edits) said: | 1 November 2009 |
| For more information, see http://online.wsj.com/article/SB125694593227919879.html | |
| 1 November 2009 | |
| Thanks for that link, D&T. Interesting indeed. One thing the article doesn't mention is that before 2005, almost all states imposed a "pick-up" or "sponge" estate tax that claimed for the state the maximum credit that was allowed against the federal estate tax for state death or generation-skipping transfer taxes. Most of those laws are still on the books (California's is, CRTC Sec. 13302), but since the federal credit was repealed for decedents dying after 2004 and replaced with a deduction for state death taxes, the state pick-up tax law produces no revenue. Just about every one of the white states on that map (states with no inheritance or estate tax) actually does have an estate tax, but it's effectively repealed due to the federal law change. | |
| 1 November 2009 | |
| Actually, Katie, they don't. The whole point of the sponge tax was that the states were effectively taxing the Federal Government not their deceased residents. | |
