Are Your Clients Subject To Massive Estate Taxes Without Knowing It?

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A client may not think they have more than $5.43 million to qualify for the 40-percent federal threshold, but the entirety of an estate might paint a different picture.

Estate taxes are a very interesting topic to discuss, even if, in reality, they don’t affect that many people. Most people might even say that having to worry about federal estate taxes is a good problem to have because it means they’re a millionaire five-times over.

However, when factoring in every aspect of an estate, it’s not out of the realm of possibility to exceed the exemption threshold without realizing it. And if they live in a state that has its own estate taxes, often with thresholds well below the federal limit, the pain gets a lot more real.

How Does It Add Up?

As a financial professional, you’re aware of some of your clients’ assets, be it investment or retirement accounts you manage. What about the rest?

Property Ownership: Do they own their home? Do they own multiple homes? Do they have other rental properties?

Bank Accounts: Apart from the ones you’re aware of, perhaps used to draw money for investments, how many other accounts do they have?

Vehicles: How many cars do they have? Are they leased or owned? Are there any other vehicles -- boats, RV, aircraft, motorcycles -- that would be factored into their estate?

Life Insurance Coverage: Do you know if your client has a stand-alone Life Insurance and how much it’s worth? Are they aware that the proceeds from a policy count towards their estate? A multi-million dollar policy can put them dangerously close to the threshold. Is it in an Irrevocable Life Insurance Trust (ILIT) to shield the beneficiaries from estate taxes?

Valuables: Unless you’ve been to a client’s home, would you know the value of their artwork, antique furniture or rugs, memorabilia collection, and jewelery either purchased or passed down through generations? What about the contents of a safe deposit box?

Business Interests: Perhaps they have shares in a private or family business that might have a high value at the time of their death.

Financial Accounts With Other Professionals: What if you’re not the only pro in a client’s life?

States With Estate Tax

taxfoundation.org estate and inheritance tax map

While it does take a very large estate to qualify for federal estate taxes, according to the Tax Foundation there are 14 states and The District of Columbia that have an estate tax and the exemptions vary. Let’s take a look in alphabetical order:

Connecticut: 7.2-12 percent estate tax rate (exemption threshold: $2 million)

Delaware: 0.8-16 percent estate tax rate (exemption threshold: $5.45 million)

Hawaii: 0.8-16% percent estate tax rate (exemption threshold: $5.45 million)

Illinois: 0.8-16 percent estate tax rate (exemption threshold: $4 million)

Maine: 8-12 percent estate tax rate (exemption threshold: $1 million)

Maryland: 16 percent estate tax rate (exemption threshold: $2 million)

Massachusetts: 0.8-16 percent estate tax rate (exemption threshold: $1 million)

Minnesota: 9-16 percent estate tax rate (exemption threshold: $1.6 million)

New Jersey: 0.8-16 percent estate tax (exemption threshold: $675 thousand -- NOTE: This is expected to be phased out by 2018)

New York: 3.06-16 percent estate tax rate (exemption threshold: $3.125 million)

Oregon: 0.8-16 percent estate tax rate (exemption threshold: $1 million)

Rhode Island: 0.8-16 percent estate tax rate (exemption threshold: $1.5 million)

Vermont: 0.8-16 percent estate tax rate (exemption threshold: $2.75 million)

Washington: 10-20 percent estate tax rate (exemption threshold: $2.078 million)

Washington DC (District of Columbia): 0.8-16 percent estate tax rate (exemption threshold: $1 million)

What Protection Do Your Clients Have?

If you practice in any of the states listed above you know how to help clients manage their estate so their heirs can get the most out of their inheritance. But how do you get the full picture? Do you ask about assets you’re not managing? For example: Do you know if a client has a Life Insurance policy and how much it’s worth? Do you know where these assets will go after a client passes, and do you want to continue managing them for the next generation?

Yes, we have a lot of questions -- by our count we asked about 15 in this article alone. Luckily, Everplans also have solutions. Part of our mission is to help people organize and account for every possible asset.

Even if a client is nowhere near an estate tax threshold, it doesn’t hurt for them to get a handle on the totality of their estate and make sure they get a plan in place. They should think of of it like a routine doctor’s appointment. It’s worth the effort if only for peace of mind.

State-By-State Health, Legal, And End-Of-Life Resources

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