ADVANCED MARKETS State Estate Taxes In 2001, President George W. Bush signed the Economic Growth and Tax Reconciliation Act (EGTRRA) into law. This legislation began a phaseout of the federal estate tax, gradually increasing the federal estate tax exemption amount until the one-year repeal of the federal estate tax in 2010. Due to the phaseout of the estate tax, EGTRRA reduced (from 2002 2004) and then repealed most state sponge or pickup taxes after 2004. The sponge tax employed by states prior to the enactment of EGTRRA relied on the federal estate tax credit for state estate taxes paid, which meant that a state could receive estate tax revenue without increasing the tax burden on its residents estates. To take full advantage of the federal credit, most states charged state estate tax equal to the federal credit for state estate taxes paid. This method of generating estate tax revenue worked for states until EGTRRA was passed. Most states who did not amend their estate tax statutes found themselves without any estate tax revenue by 2005, when EGTTRA repealed the federal credit, replacing it with a federal deduction. The 50 states responded to the repeal of the state estate tax credit in various ways. Many states took action to prevent future estate tax revenue losses by decoupling their estate tax laws from the federal estate tax credit. In total, 15 states and the District of Columbia levy an estate tax separate from the federal estate tax. In addition, several states levy an inheritance tax in conjunction with, or as an alternative to, a state-level estate tax. With the enactment of the American Taxpayer Relief Act of 2012 (the 2012 Tax Act ), the provisions of EGTRRA and the 2010 Tax Act have been extended permanently, including the federal estate tax deduction for state estate taxes. Consequently, those states whose laws depended on the federal state credit for estate tax revenue will continue to be without any estate tax revenue. For those states that decoupled from the federal estate tax laws or that have separate inheritance tax laws, the enactment of the 2012 Tax Act will have no effect on their estate taxes. Summaries of all 50 state laws are listed on the following pages. The terms estate tax and death tax may be used interchangeably. This information has been updated as of May 2014. However, state laws change frequently and the following information may not reflect recent changes in the law. LIFE-5106 6/14 Page 1 of 7. Not valid without all pages.
Alabama Alaska Arizona Arkansas California Colorado Connecticut EFFECT OF EGTRRA ON PICKUP TAX AND SIZE OF GROSS E Arizona permanently repealed its state estate tax. Connecticut has a unified gift and estate tax law that levies a tax against gratuitous transfers and estates exceeding $2 million with rates ranging from 7.2% to 12%. A state Qualified Terminable Interest Property (QTIP) election is permitted. For decedents dying on or after July 1, 2009, the Connecticut tax is due six months after date of death. Delaware Delaware imposes a state estate tax on all estates exceeding the federal exemption amount ($5.34 million in 2014); such estate tax rates range between 12% - 16%. District of Columbia (D.C.) Florida Georgia Hawaii Idaho Illinois For estates of decedents dying on January 1, 2003, and after, D.C. statute provides that estate tax is equal to the credit for state death taxes allowed for 2001 and is imposed only on estates exceeding $1 million. No separate QTIP election is permitted. Hawaii imposes an estate tax equal to the state death tax credit, as it was on December 31, 2000, on all estates that exceed the federal exemption amount which is currently $5.34 million (as of 2014). Hawaii also allows a separate state QTIP Election. Illinois imposes an estate tax equal to the state death tax credit allowed as of December 31, 2001. The estate tax in Illinois is only imposed on estates exceeding $3.5 million for 2012 and $4 million for 2013 and beyond. A separate QTIP election is allowed. Indiana Indiana s estate tax is tied to federal state death tax credit, therefore no estate tax. Moreover, as of January 1, 2013, the inheritance tax in Indiana has been repealed. Iowa Iowa has both an estate tax and inheritance tax. Estate tax was tied to federal state death tax credit, therefore no estate tax. The separate inheritance tax has top rates of 10% or 15%, depending on the beneficiary and type of property involved. Kansas The Kansas estate tax has been repealed for decedents dying after 2009. Page 2 of 7. Not valid without all pages.
Kentucky Louisiana EFFECT OF EGTRRA ON PICKUP TAX AND SIZE OF GROSS E Kentucky has both an estate and inheritance tax. Estate tax was tied to federal state death tax credit, therefore no estate tax. The separate inheritance tax has a top rate of 16% and recognizes a separate state QTIP election. Maine As of January 1, 2013, Maine imposes an estate tax on estates exceeding $2 million with rates as follows: 8% for estates between $2 and $5 million, 10% for estates between $5 and $8 million, and 12% for estates that exceed $8 million. A separate state QTIP election is permitted. Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire Maryland has both an estate tax and inheritance tax. For 2014 and years prior, the estate tax is equal to the pre-egtrra federal state death tax credit for estates exceeding $1 million. Starting in 2015, the exemption amount increases to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, $4 million in 2018, and, for taxpayers dying in 2019 or later, the exemption is tied to the federal estate tax exemption then in effect. Beginning in 2019, the Maryland estate tax exemption will be portable between spouses. A separate state QTIP election is permitted. A separate inheritance tax of 10% is also levied for transfers to certain individuals. Massachusetts imposes an estate tax equal to the pre-egtrra federal state death tax credit on estates exceeding $1 million. A separate state QTIP election is permitted. In 2014, Minnesota once again changed its estate tax law. This new law retroactively repeals the gift tax law enacted in 2013 (i.e. no gift tax will be due, even for gifts made during the time the law was in effect) and increases the estate tax exemption, which previously was set at $1 million. Under the new law, the exemption amount is $1.2 million in 2014, $1.4 million in 2015, $1.6 million in 2016, $1.8 million in 2017, and will top out at $2 million in 2018 and thereafter. The estate tax rates imposed are between 9% and 16%. Taxable gifts made within 3 years of death will also be included in the decedent s gross estate for the estate tax calculation. The new law also allows for a state specific QTIP election. Nebraska s estate and generation-skipping transfer tax was repealed in 2007. A separate inheritance tax is levied (at the county level), with a top rate of 1%, 13% or 18%, depending on the type of property involved. New Jersey New Jersey has both an estate tax and inheritance tax. The estate tax is imposed only on estates exceeding $675,000. The tax imposed is equal to either the maximum state death tax credit allowed as of December 31, 2001 or an amount determined under the Simplified Tax System prescribed by the Division of Taxation. 1 A separate QTIP election allowed only to the extent permitted to reduce federal estate taxes. A separate inheritance tax is also levied, with a top rate of 16%, depending on the beneficiary and type of property involved. New Mexico Page 3 of 7. Not valid without all pages.
New York EFFECT OF EGTRRA ON PICKUP TAX AND SIZE OF GROSS E On April 1, 2014, New York estate tax law was amended to provide a higher exemption amount and new tax rate schedule. Previous law imposed an estate tax on estates exceeding $1 million equal to the state death tax credit that was in effect as of July 1998. Under this new law, the exemption amounts are as follows: For April 1, 2014 March 31, 2015 $2,062,500 For April 1, 2015 March 31, 2016 $3,125,000 For April 1, 2016 March 31, 2017 $4,187,500 For April 1, 2017 December 31, 2019 $5,250,000 After January 1, 2019 Same as the federal exemption (projected to be $5.9 million in 2019) The new law requires a phaseout of the exemption if the taxable NY estate exceeds 100% of the NY exemption amount, with a complete phaseout for estates exceeding 105% of the exemption. The tax rate ranges between 6.5% and 16% for estates exceeding the exemption. The new law also includes gifts made within three years of death. New York law permits a separate QTIP election if the value of the gross estate is too low to require a federal return. If a federal return is required, a NY QTIP election is allowed only if a similar election is made on the federal return. North Carolina North Dakota Ohio As of July 1, 2013, North Carolina s estate tax was repealed. Prior to this repeal, North Carolina levied an estate tax on estates that exceeded the federal exemption amount ($5.25 million in 2013). No separate state QTIP election permitted. Ohio has eliminated its estate tax for deaths occurring on or after January 1, 2013. For deaths prior to 2013, Ohio applied an estate tax on estates exceeding $338,333, with a top estate tax rate of 7%. Oklahoma The Oklahoma estate tax has been repealed for decedents dying after 2009. Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee As of January 1, 2012, Oregon imposes an estate tax on all estates exceeding $1 million with rates ranging from 10% to 16%. A separate QTIP election for state purposes is permitted. Pennsylvania has both an estate tax and inheritance tax. The estate tax was tied to federal state death tax credit, therefore no estate tax. Pennsylvania recognizes a state QTIP election. A separate inheritance tax is imposed with top rates of 4.5%, 12% or 15%, depending on the beneficiary and the type of transfer involved. For decedents dying on or after January 1, 2010, tax is imposed on estates exceeding $850,000 (to be adjusted each year based on increase in CPI) and is equal to the state death tax credit in effect as of January 1, 2001. A state QTIP election is permitted for decedents dying after January 1, 2002. Exemption was $910,725 in 2013 and $921,655 in 2014. Tennessee has both an estate tax and inheritance tax. The estate tax was tied to federal state death tax credit, therefore no estate tax. A separate inheritance tax levied with a top rate of 9.5% and a $1 million exemption. The exemption amount for the inheritance tax will be increased to $1.25 million in 2013, $2 million in 2014, and $5 million in 2015. Come January 1, 2016, the inheritance tax will be completely eliminated. Also, the Tennessee state gift tax was repealed retroactive to January 1, 2012. Allows a separate state QTIP election. Page 4 of 7. Not valid without all pages.
Texas Utah Vermont EFFECT OF EGTRRA ON PICKUP TAX AND SIZE OF GROSS E Tax is imposed on estates exceeding $2,750,000. The amount of tax due is determined by comparing a hypothetical federal estate tax calculation with an exemption of $2,750,000 to the state death tax credit in effect back in January 1, 2001, and taking the lesser amount. No separate state QTIP election permitted. Virginia The state estate tax has been repealed for decedent s dying after July 1, 2007. Washington West Virginia Wisconsin Wyoming A stand-alone state estate tax with rates ranging from 10% to 20% and a $2 million exemption (indexed for inflation - 2014 exemption is $2,012,000). A separate state QTIP election is permitted. As of January 1, 2008, the tax is tied to the federal state death tax credit, therefore no estate tax. Page 5 of 7. Not valid without all pages.
QUICK SUMMARY CHART State with Full Estate Tax Repeal Arizona Nebraska Virginia North Carolina Kansas Oklahoma Ohio Decoupled States Connecticut Hawaii Maryland New Jersey Rhode Island Delaware Illinois Massachusetts New York Vermont D.C. Maine Minnesota Oregon Washington States Relying on Federal Credit (i.e. estate tax no longer imposed at state level) Alabama Florida Kentucky Montana Pennsylvania Utah Alaska Georgia Louisiana Nevada South Carolina West Virginia Arkansas Idaho Michigan New Hampshire South Dakota Wisconsin California Indiana Mississippi New Mexico Tennessee Wyoming Colorado Iowa Missouri North Dakota Texas States with Inheritance Tax Iowa Kentucky Nebraska Tennessee Maryland New Jersey Pennsylvania DECOUPLED S EXEMPTION CHART State 2012 Exemption 2013 Exemption 2014 Exemption Connecticut $2 million $2 million $2 million Delaware $5.12 million $5.25 million $5.34 million D.C. $1 million $1 million $1 million Hawaii $5.12 million $5.25 million $5.34 million Illinois $3.5 million $4 million $4 million Maine $1 million $2 million $2 million Maryland $1 million $1 million $1 million Massachusetts $1 million $1 million $1 million Minnesota $1 million $1 million $1.2 million New Jersey $675,000 $675,000 $675,000 New York $1 million $1 million $2,062,500 (as of 4/1/14) North Carolina $5.12 million $5.25 million Estate tax repealed Oregon $1 million $1 million $1 million Rhode Island $892,865 $910,725 $921,655 Vermont $2.75 million $2.75 million $2.75 million Washington $2 million $2 million $2,012,000 Page 6 of 7. Not valid without all pages.
States Imposing Estate and Inheritance Tax 1. The Simplified Tax System may only be used in those situations where a federal estate tax return has not and will not be filed nor is a tax return required to be filed with the IRS. This material does not constitute tax, legal or accounting advice, and neither John Hancock nor any of its agents, employees or registered representatives are in the business of offering such advice. It cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the marketing of the transactions or topics it addresses. Comments on taxation are based on John Hancock s understanding of current tax law, which is subject to change. Anyone interested in these transactions or topics should seek advice based on his or her particular circumstances from independent professional advisors. INSURANCE PRODUCTS: Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. Not FDIC Insured Not Bank Guaranteed May Lose Value 2014 John Hancock. All rights reserved. Not a Deposit Not Insured by Any Government Agency MLINY061714188 Page 7 of 7. Not valid without all pages.