Where You Die and If You’re Married Matters For State Estate Taxes

A dating couple was on the verge of moving to Florida to get married, but the boyfriend died in New Jersey before they could make it to Florida. This ended up costing the estate $214, 000 in state taxes. In New Jersey, gifts over $500 to anyone other than a spouse, child, grandchild, parent or domestic partner are subject to a 15% tax, among other provisions.

If the couple had been able to get married before the boyfriend died, then they would have escaped the New Jersey tax. If the couple made it to Florida, then the benefit would have been that Florida has no separate estate or inheritance tax.

These varying tax laws from state to state should not dissuade you from making lifetime gifts, but you should consult with a tax and estate attorney if you’re concerned about the impact a move could make.

When gifting, you should always consider what assets are the best to give away from an income tax standpoint. Usually the best assets are those with basis-worth close to what you originally paid for them that you would expect to appreciate in value.

See Ashlea Ebeling, Delayed Nuptials Cost Couple $214,000 in State Death Tax, Forbes, Dec. 23, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.