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In the United States, certain states collect a death tax based on the value of the deceased person’s estate and who inherits it.
 
As of January 1, 2015, the following states collect a death tax: Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee (but it will be repealed in 2016), Vermont, and Washington.
 
Each of these states has its own laws governing the amount of assets that are exempt from the death tax, what deductions can be taken, and the applicable death tax rate. But regardless of these factors, for an estate to be potentially subject to a state death tax, the deceased person must have either lived in the state at the time of death or owned real estate or tangible personal property located in the state.
 
Some examples should help to illustrate when an estate may be potentially subject to a state death tax:
 

1. Deceased Person was a New York resident. If you inherit your uncle’s estate and he lived in New York at the time of his death, will the estate potentially be subject to a state death tax? The answer is yes, because your uncle lived in New York at the time of his death and New York collects a state death tax. However, whether or not the estate will owe any New York death taxes will depend on the value of your uncle’s estate and what deductions can be taken.

2. Deceased Person was a Florida resident. On the other hand, if your uncle lived in Florida at the time of his death and did not own any property located in New York, then his estate would not be subject to New York death taxes, nor would his estate owe any Florida death taxes since Florida does not collect a state death tax.

3. Inheritor is a New York Resident. What if you inherit your uncle’s estate and he lived in Florida at the time of his death and he did not own any property located outside of Florida, and you live in New York, will your uncle’s estate be subject to the New York death tax? The answer is no, because your uncle was a Florida resident who did not own property located in New York, and Florida does not collect a state death tax. But what if your uncle, who was a Florida resident at the time of his death, owned a second home located in New York? In this case your uncle’s estate will potentially be subject to New York death taxes even though he was a Florida resident at the time of his death because he owned a house that is physically located in New York which is a state that collects a state death tax.

As the above examples show, state death taxes are tricky and can apply even in unexpected situations. Please contact our office if you have any questions about state death taxes.

The process of funding your Living Trust is not difficult, but it will take some time. Because living trusts are now so widely used, you should meet with little or no resistance when transferring your assets. For some assets, a short assignment document will be used. Others will require written instructions from you. Most can be handled by mail or telephone.
 
Some institutions will want to see proof that your trust exists. To satisfy them, your attorney will prepare what is often called a Certificate of Trust. This is a document that verifies your trust’s existence, explains the powers given to the trustee, and identifies the trustees. However, it does not reveal any information about your assets, your beneficiaries, or their inheritances.
 
While the process isn’t difficult, it is easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you are finished. Make a list of your assets and their values and locations. Then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.
 

That depends on the size of your estate. Federal estate taxes must be paid if the net value of your estate when you pass away is more than the amount exempt at that time. Some states have their own estate/inheritance tax, and it is possible your estate could be exempt from federal tax but have to pay state tax.
 
Your taxable estate includes benefits from life insurance policies you can borrow against, assign or cancel, or for which you can revoke an assignment, or name or change a beneficiary.
 
If your estate will not have to pay estate taxes, naming your living trust as owner and beneficiary of the policies will give your trustee maximum control over them and the proceeds.
 
If your estate will be subject to estate taxes, it would be better to set up an irrevocable life insurance trust and have it own the policies for you. This will remove the value of the insurance from your estate, reduce estate taxes and let you leave more to your loved ones.
 
There are some restrictions on transferring existing policies to an irrevocable life insurance trust. If you pass away within three years of the transfer date, the IRS will consider the transfer invalid and the insurance will be back in your estate. There may also be a gift tax. These restrictions, however, do not apply to new policies purchased by the trustee of this trust. If you have a sizeable estate, your attorney will be able to advise you on this and other ways to reduce estate taxes.
 

Unless the car is valuable and substantially increases your estate, you will probably not want it in your trust. The reason is that if you are at fault in an auto accident and the injured party sees that your car is owned by a trust, he or she may think “deep pockets” and be more likely to sue you.

All states allow a small amount of assets to transfer outside of probate, and the value of your car may be within this limit. Some states let you name a beneficiary. In some states cars do not even go through probate. Your attorney will know the laws and procedures in your state and will be able to advise you.

Some clients wonder if putting real estate in their Living Trust will cause any inconveniences. In most cases, you will notice little difference. You may even find it easy to transfer real estate you own to your Living Trust, and to purchase new real estate in the name of your trust. Refinancing may not be as easy. Some lending institutions require you to conduct the business in your personal name and then transfer the property to your trust. While this can be annoying, it is a minor inconvenience that is easily satisfied.
 
Because your living trust is revocable, transferring real estate to your trust should not disturb your current mortgage in any way. Even if the mortgage contains a “due on sale or transfer” clause, retitling the property in the name of your trust should not activate the clause. There should be no effect on your property taxes because the transfer does not cause your property to be reappraised. Also, having your home in your trust will have no effect on your being able to use the capital gains tax exemption when you sell it.
 
Also, having your Living Trust as the owner on your homeowner, liability and title insurance may make it easier for a successor trustee to conduct business for you. Check with your agent.
 

Do not change the ownership of these to your living trust. You can name your trust as the beneficiary, but be sure to consider all your options, which could include your spouse; children, grandchildren or other individuals; a trust; a charity; or a combination of these. Whom you name as beneficiary will determine the amount of tax-deferred growth that can continue on this money after you pass away.
 
Most married couples name their spouse as beneficiary because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide for many more years of tax-deferred growth. (After you pass away, your spouse can “roll over” your tax-deferred account into his/her own IRA and name a new beneficiary, preferably someone much younger, as your children and/or grandchildren would be.) A non-spouse beneficiary can also inherit a tax-deferred plan and roll it into an IRA to continue the tax-deferred growth, but only a spouse can name additional beneficiaries.
 
Of course, any time you name an individual as benefi­ciary, you lose control. After you pass away, the beneficiary can do whatever he or she wants with this money, including cash­ing out the account and destroying your carefully made plans for long-term, tax-deferred growth. The money could also be available to creditors, spouses and ex-spouses, and there is the risk of court interference at incapacity.
 
Naming a trust as beneficiary will give you maximum control because the distributions will be paid not to an individual, but into a trust that contains your written instructions stat­ing who will receive this money and when. After you pass away, distributions will be based on the life expectancy of the oldest beneficiary of the trust. You can also set up separate trusts for each beneficiary so that each one’s life expectancy can be used.
 
The rules for these plans have recently been made simpler, but it is still easy to make a costly mistake. Because there is often a lot of money at risk, be sure to get expert advice.