Strengthen. State Estate and Inheritance Taxes Chart. For Broker Dealer Use Only. Do Not Use With Consumers. WCLAG.1370 (02.10)

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1 Strengthen Your Legacy State Estate and Inheritance Taxes Chart WCLAG.1370 (02.10) For Broker Dealer Use Only. Do Not Use With Consumers.

2 Strengthen Your Legacy Overview of State Estate and Inheritance Taxes Prepared by the Advanced Sales Team West Coast Life Insurance Company. Research is current as of 01/01/10. For more information, contact our Advanced Sales Team at (800) , option 3, ext Passage of legislation in 2001 (EGTRRA) caused a fundamental change in how the various states collect death taxes. Before 2001, most states collected an estate tax based on the Federal state estate death tax credit reported to the IRS on Form 706 (U.S. Estate Tax Return). In effect, the system used by states was a form of revenue sharing, using the Federal estate tax return as the primary mechanism to collect their share, the sponge tax or pick-up tax. This arrangement ended after 2001, with the phase-out of Federal state death tax credit after So, unless a pick-up tax state acted to escape (or decouple ) from the pick-up tax system, or enacted its own separate death tax law, that state would no longer collect estate taxes. State Estate Taxes. Keeping track of current state tax law is a never-ending task. At last count, 15 states plus the District of Columbia collect some form of estate tax for death occurring in Most are former pick-up states that decoupled from Federal estate tax law. Ten of these states (IL, ME, MD, MA, MN, NJ, NY, OR, RI, and VT) continue to apply some or all of the pre-egtrra federal exemptions, tax rates, definitions, and deductions. Certain other states (CT, KS, OH, OK, WA, and DC) have enacted their own separate estate tax rules that are not linked to federal estate tax calculations. Recently, some states (including VA and NC) having repealed their estate tax; some states (WI) allowed it to expire; some are phasing the tax out (and others never had one. Lack of uniformity. The lack of uniformity among the states on death taxes, adds complexity and uncertainty. For instance, the exemption varies widely, from $338,000 in Ohio to $3,500,000 in Delaware (which adopted the Federal exemption effective during 2009). Other variables may impact state tax calculations, including tax brackets (ranging up to 19%), the definition of taxable and tax-exempt property, the deduction allowed for any Federal estate taxes paid, and whether a separate state QTIP election is permitted on the state estate tax return. Need for state-specific tax expertise. Advisors may discover that it will be increasingly commonplace for estates and/or heirs to owe state estate or inheritance death taxes even without owing federal estate taxes. For decedents who own properties located in two or more states, the tax computations can be quite onerous. Conventional planning techniques (e.g., two trust plans or A-B trust plans) may not work as effectively as in the past, given the variety of state death tax laws. The following Chart contains summary information about each state s estate and inheritance tax rules, based on our understanding of these laws as of January 1, State taxation is clearly an area of rapid change due in part to the budget pressures felt by the states. Accordingly, the information on this Chart is subject to change at any time, as state legislatures and revenue authorities take actions in this area of taxation. State Inheritance Taxes. Six states (IN, IA, KY, NE, PA, and TN) collect a separate inheritance tax without an estate tax, and two states (MD and NJ) collect both an inheritance tax and state estate taxes.inheritance tax rates, deductions, and exemptions vary widely from state to state. There is no Federal inheritance tax. Helpful Definitions Estate tax the tax imposed on the total value of a person s entire interest in real and personal property ( estate ) upon his or her death. Inheritance tax a transfer tax imposed on each heir s right to receive property transferred to him or her as inheritance. It is calculated separately for each heir and depends on the value of the heir s inheritance, the type of property and category of beneficiary. For Broker Dealer Use Only. Do Not Use With Consumers. State Estate and Inheritance Taxes 2 of 6

3 Strengthen Your Legacy State Estate and Inheritance Tax Chart State Estate Tax? Decoupled? Exemption Amount Top Tax Bracket Inheritance Tax? Additional Comments Alabama No No N/A N/A No Lost its sponge or pick-up tax (i.e., Alabama collected a state estate tax equal to the federal credit for state estate taxes). After EGTRRA, Alabama has not decoupled from the federal estate tax, so state estate taxes are not currently collected. Alaska No No N/A N/A No Same as Alabama. Arizona No No N/A N/A No Arizona permanently repealed its state estate tax in Arkansas No No N/A N/A No Same as Alabama. California No No N/A N/A No Same as Alabama. Colorado No No N/A N/A No Same as Alabama. Connecticut Yes Yes $2MM 5% to 16% No Connecticut has a new independent estate tax retroactive to 2005, not linked to the federal estate tax. The old gift tax was repealed. Delaware Yes Yes $3.5MM 16% No New estate tax for decedents dying after July 1, 2009, applied to estates over $3.5MM, and tied to state death tax credit as of January 1, District of Columbia Yes No $1MM 16% No From 2003, tax imposed only on estates exceeding $1MM. Separate state QTIP election not permitted. Florida No No N/A N/A No Same as Alabama. Georgia No No N/A N/A No Same as Alabama. Hawaii No No N/A N/A No Same as Alabama. Idaho No No N/A N/A No Same as Alabama. Illinois Yes Yes $2MM N/A No For decedents dying after 2009, tax is tied to federal state death tax credit. Separate state QTIP election is not permitted. Indiana No No N/A N/A Yes Lost its sponge tax (pick-up tax) after the federal state tax credit was phased out, but continues to maintain a separate state inheritance tax with tax brackets of 10%, 15%, or 20% depending on type of property and category of beneficiary. Separate state QTIP election is permitted. Iowa No No N/A N/A Yes Lost its sponge tax (pick-up tax) after the federal state tax credit was phased out, but continues to maintain a separate state inheritance tax with top rate of 10%, 12% and 15%, based on category of property and beneficiary. Kansas No No N/A N/A No The Kansas estate tax ended after December 31, Kentucky No No N/A N/A Yes Separate inheritance tax with tax brackets from 6 to 16%. Separate state QTIP election is permitted. For Broker Dealer Use Only. Do Not Use With Consumers. State Estate and Inheritance Taxes 3 of 6

4 State Estate Tax? Decoupled? Exemption Amount Top Tax Bracket Inheritance Tax? Louisiana No No N/A N/A No Same as Alabama. Additional Comments Maine Yes Yes $1MM 16% No For decedents dying after December 31, 2002, pickup tax is imposed on estates over $1MM. The federal estate tax deduction is ignored in computing Maine S estate tax eliminating circular computation. A separate state QTIP election is permitted.2002, pickup tax is imposed on estates over $1MM. The federal estate tax deduction is ignored in computing Maine S estate tax eliminating circular computation. A separate state QTIP election is permitted. Maryland Yes Yes $1MM 16% Yes $1MM exemption is frozen. The federal estate tax deduction is ignored in calculating Maryland s estate tax eliminating circular computation. A separate state QTIP election is permitted. Maryland imposes an Inheritance tax up to 10%, depending on type of property and beneficiary. Massachusetts Yes Yes $1MM 16% No For decedents dying after 2003, staste estate tax is imposed on estates greater than a $1MM exemption (frozen by state law). A separate state QTIP election is permitted. Michigan No No N/A N/A No Same as Alabama. Minnesota Yes Yes N/A 16% No A separate state QTIP election is not permitted. Mississippi No No N/A N/A No Same as Alabama. Missouri No No N/A N/A No Same as Alabama. Montana No No N/A N/A No Same as Alabama. Nebraska No No N/A N/A Yes Nebraska repealed its state estate tax and GST tax effective 2007, but counties collect a state inheritance tax with tax brackets of 1%, 9%, or 18% depending on the type of property. Nevada No No N/A N/A No Same as Alabama. New Hampshire No No N/A N/A No Same as Alabama. New Jersey Yes Yes $675,000 16% No NJ has a pick-up tax, frozen at the federal state death tax credit in effect on 12/31/2001. Separate state QTIP election is allowed but only to the extent permitted to reduce federal estate tax. New Mexico No No N/A N/A No Same as Alabama. New York Yes Yes $1MM 16% No Tax imposed on estate greater than $1MM. NY also applies estate tax to non-residents with NY property. Separate state QTIP election is not permitted. For Broker Dealer Use Only. Do Not Use With Consumers. State Estate and Inheritance Taxes 4 of 6

5 For Broker Dealer Use Only. Do Not Use With Consumers.

6 This material contains statements regarding the tax treatment of certain financial assets and transactions. These statements represent only our current understanding of the law in general and are not to be relied upon by purchasers. Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither West Coast Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal or tax adviser regarding their individual situations before making any taxrelated decisions. Life insurance is issued by West Coast Life Insurance Company (WCL), 2801 Highway 280 South, Birmingham, AL Protective Life Corporation is a separate company and is not responsible for the financial condition or the contractual obligations of WCL. WCLAG.1370 (02.10) For Broker Dealer Use Only. Do Not Use With Consumers. State Estate and Inheritance Taxes 6 of 6