Many affluent Americans, investors and business owners were pleased when the federal estate tax law was changed, allowing for a $5.25 million estate tax exemption for individuals and $10.5 million for joint filers. However, many people who are focusing on retirement and going through the process are still contending with state estate taxes, with some even relocating to new areas that provide a more favorable tax structure. In an effort to keep wealthy residents from fleeing, some states are considering sweeping changes to their existing estate tax rules.
The New York State Tax Relief Commission, for instance, proposed significant modifications to its current laws that would implement a lower top rate and a higher exemption to match the new permanent federal estate tax exemption and be indexed for inflation, Forbes reported. Under the proposed changes, individuals with a net worth of $5.34 million or less would owe no New York state estate tax – a considerable increase from its existing $1 million exemption. Additionally, the commission proposed reducing the top tax rate on amounts above that to 10 percent, down from its current 16 percent.
New York state is currently one of 17 states with either an estate tax or an inheritance tax in place, and only two states have a lower exemption, according to the New York Observer Today. Additionally, the commission notes that estate tax exemptions have been unable to keep pace with rising home values in many areas, resulting in more individuals becoming subject to estate taxes.
Over the last several years, the state has faced an exodus of wealthy residents and investors who wished to avoid the state’s high tax rates and limited estate tax exemptions. However, the commission hopes that putting more favorable rates in place will help reverse the tide of individuals relocating their families and their investments to other states as they amass more wealth.