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Moving South doesn’t mean you outrun high estate taxes

2012-09-19 14.35.30

By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley

Ah, Florida. It calls to retirees like the mythical siren calls to sailors. Warm weather, year-round golf, palm trees on every corner, not a flake of snow and the promise of lower taxes bring the 60-plus set to our Southern-most state at record rates. In fact, Florida is now the nation’s third most populous state.

The Journal of Accountancy notes that 19 states impose an inheritance tax on top of other federal taxes. Both Kentucky and Tennessee have an inheritance tax, although Tennessee will eliminate its inheritance tax in 2016. This means if you inherit property from an estate of someone who moved to Kentucky or Tennessee and passed away in either state, you might be giving a portion of those proceeds from the estate to the respective state government – if the proceeds are above certain thresholds and, at least in Kentucky, depending on your relationship to the deceased.

What complicates matters is that governments in some states seem highly suspicious of those who move away. Some put families who have inherited an estate through rigorous paperwork to try to get out of paying estate taxes in that state.

For example, the state of New York requires information going back five years on the person who passed away, and the estate heirs are required to fill out the stack of paperwork to provide the information.

In Connecticut, former residents of the state who lived and died elsewhere are required to fill out paperwork and send in past tax returns. And not only that, but Connecticut is the only state in the U.S. that imposes a gift tax – so if you lived and owned a house in Connecticut, and you wanted to give away the home to a child instead of letting the child inherit it through your estate, you would be subject to Connecticut gift taxes, as well as federal gift taxes.   All of this is quite a mess, as highlighted in the excellent Journal of Accountancy article recently on this topic.

Many retirees don’t make a clean break, which means that even though they spend the majority (or even all) of their time in a more Southern locale, the higher tax rate or lower exemption from taxes can still apply to their estate. The rules are incredibly complex and onerous, and not easy for the average person to decipher.

Keeping a house or condo in your home state may sound like a great solution to give you ease of movement from one place to the next – summers in New York, winters in Florida, anyone? – but it means if and when you die, your estate will likely owe taxes in both locales. Even buying a home in Florida, getting a Florida driver’s license and registering to vote in Florida isn’t quite enough if you own a home elsewhere.

Whenever you’re making a big change in locale, it makes sense to review your estate plans with a qualified tax professional. We are happy to work with clients who are moving to another location or those who have just relocated to Kentucky or Tennessee. Contact me, Nathan Vinson, at nvinson@elpolaw.com or (270) 781-6500, if you would like to discuss your estate planning options.