Doesn’t help if you have significant assets in real estate or a business which can’t be moved.
And my state bases the percentage you pay on your world-side assets. That percentage is then applied to your assets in the state.
@BunsenBurner, we’re talking about different things. I was talking about exemptions from inheritance taxes in the few states that have them. Unlike an estate tax which taxes the estate of the person who dies, an inheritance tax taxes the heir or beneficiary of a will on the amount they receive. In an inheritance tax you usually don’t have the same problem of postponement of taxation that you have in an estate tax.
My state, Minnesota, has an estate tax on estates over $2.1 million (though this is scheduled to rise to $3 million by 2020). That works just as you describe.
In contrast, neighboring Iowa has an inheritance tax on inheritances from estates over over $25K. Sounds harsh, except that they exempt inheritances received by a surviving spouse, parents, grandparents, children (biological or adopted), grandchildren, great-grandchildren, etc., i.e., anyone in a direct line of descent. They also exempt charitable organizations, of course. So unless your will provides for gifts to unrelated persons, for-profit corporations, or siblings, nieces, nephews, cousins and other relatives not in your direct line of descent, there’s no inheritance tax to worry about, and no postponement of taxation. In short, in Iowa my spouse and I could pass unlimited amounts to our children free of taxation at the state level, whether we do so directly or pass all the assets to the surviving spouse for later distribution to the children when the surviving spouse dies.
Pennsylvania, another state with an inheritance tax, is a bit less generous. They don’t tax property received by a surviving spouse, but they do tax all property received by a lineal descendant (child, grandchild) at a rate of 4.5%. The rate is higher, 12% for property received by a sibling, and 15% for other heirs or beneficiaries except tax-exempt organizations. So in Pennsylvania it really doesn’t matter whether I Ieave property directly to my kids or leave it to my spouse and then it passes to my kids later. Either way, they’re going to pay 4.5% of the full amount they receive. It’s complicated, of course, by federal estate taxation which imposes higher rates but also has quite large exemptions, but in states with inheritance taxes as opposed to estate taxes, the federal tax will be the principal driver of estate planning.
@BunsenBurner, I had considered setting up a QTip until ShawWife became a US citizen.
Well, bc, you can’t control inheritance taxes by moving, can you? 
Well, actually, I think you can control inheritance taxes by moving, at least in some states. I don’t have any direct experience or expertise in this, but as I read Iowa’s inheritance tax requirements, the tax applies to 1) all inheritances and testamentary gifts from an Iowa domiciliary’s estate, and 2) any inheritances and testamentary gifts from real estate and tangible personal located in Iowa if the decedent is domiciled in another state. And it makes no difference where the beneficiary resides. It’s up to the decedent’s personal representative to file the inheritance tax return. So an Iowa resident who doesn’t want to pay these taxes can simply move out of state and not leave behind any real estate or tangible personal property in Iowa. Then even if some beneficiaries of decedent’s will are Iowa residents, there’s nothing for Iowa to tax.
That actually makes sense because a state has jurisdiction over real estate located in the state… unless it is in a trust, then it is not subject to probate in that state (not sure about inheritance taxation).
All of the WA folks I know who own RE in HI have put it into a revocable trust or some LLC for the purposes of avoiding to have to go through probate in HI where the courts are apparently very backlogged. So there you go - another benefit of a trust: RE placed into a trust m avoids probate both in the state where it is located and in the state of residence of the deceased.
(I just met with a very good WA estate attorney to discuss our personal issues, ffloated the HI condo hypo, and she confirmed that…)
Yes, our relative had property in HI and CA. Had a CA trust and put the property in the trust and then died in CA. No probate was needed in CA or HI. The beneficiaries got more and the trust was fully distributed within a few years after death.
" His dad died during what I believe may have been a short period of time where the government could get 55% of his estate. The father was a well known MD with an estate of maybe 15 million bucks." - Ummmm… methinks a windfall of over $8 million should be plenty to make the family happy.
How did they get more? Is it from not having to pay an attorney to go through probate? Or does HI have a higher rate than CA? CA is not bad when it comes to inheritance tax.
There was a significant amount saved by not having to go thru probate and pay the mandatory fees associated with probate in CA and HI.
I heard probates in CA is horrendous. It’s also bad in NY and FL. Don’t know about HI but in most states, it’s no big deal.
I listen to a local guy on the radio (who actually owns the law practice that we work with). He said that in Washington state, probate is not a big deal. Will take some time and a couple thousand dollars, but it’s not bad. My parents don’t have a will, though they have substantial assets. I have thought about pressing them for that, as my father is significantly older than my mother, and then thought, why bother? Everything will pass to her without issue, I’m assuming, and if they’re uncomfortable dealing with the thought of death, it’s not like it’s a complicated, expensive process here to die intestate.
I had heard that probate was not terrible in NYS, so did not force my mother to create a trust. No sibling battles or claims on her assets. Should I rethink this?
@CT1417, if time is not of the essence, I personally would wait until next year when the tax changes have been digested by attorneys. YMMV.
I read probate would have been 10% of the value of the assets for CA I’d they were over a certain minimum. The attorney we worked with confirmed that for SisIL, minimum probate fees alone would have been over $100,000!
That is incredible, HImom. What a scam. California will do anything to get people’s money. It’s not like their attorney’s are doing that much work for the 10%.
In Washington, even if you don’t leave a will, your assets that have assigned beneficiaries do not have to go through probate.
Should we put everything into the trust or just the real estate? Do we need to put 401K/IRA, life insurance,… into the trust?
I put it all in the trust; that allows the trustees to access those funds to care for me if I become incapacitated.
ETA that the trust was set up after my DH had passed.
When H’s sister passed, she mainly put the real estate in the trust. The IRAs and investment accounts were passed to beneficiaries upon death, based on beneficiaries and how they were titled. Life insurance also went straight to beneficiaries.
Of course, please consult your estate planner to be sure that you do what works best for your assets and heirs, based on whatever the final tax overhaul does. Folks that try to do it themselves can end up having their estates pay a lot more in taxes or their heirs tangled up than expected.
Is CA tax rate for trust assets higher the than the rate for individuals?