As I mentioned in last week’s blog, I spent the week in Orlando at the Heckerling Institute on Estate Planning. Heckerling provides a wide range of sessions on estate planning and elder law topics.
The institute opened with a great run down of 2013 developments by Dennis Belcher, Carole Harrington, and Jeff Pennell. It continued with in depth looks at various topics from GRATs to Same-Sex Marriage. However, what struck me during my time at Heckerling was not any great new estate planning technique, but how much estate planning has changed in the past 15 years.
Fifteen years ago, the country had the same estate tax situation, generally. We had an applicable exclusion of $650,000 and a top rate of 55%. Every state had at least a “pick up” tax. In every state, it made sense to avoid estate taxes, even if it meant incurring a capital gains tax because the property had been gifted out of the estate and would not get a step-up in basis.
As we are in the middle of the second decade of the 21st century, things look much different. The income and capital gains rates have gone up. Capital gains rates may be as high as 23.8%, including the affordable care act 3.8% surcharge. Of course, state estate taxes can drive that much higher. The divergence of tax situations means that what makes sense in Manhattan may not make sense in Manhattan, Kansas.
This has lead to a divergence of estate planning techniques, depending upon the interplay of the income and estate taxes in each state. That’s just on the first level. Of course, the substantive law also varies by state.
For example, a married couple in California faces high income taxes, but no state estate tax. A couple in Washington State faces a state estate tax with a low exclusion, but no state income tax.
In this decade, the federal nature of our republic has become more apparent than it was earlier in our careers. Here are just a few factors which one must balance in estate planning, and which may have different inputs in different states:
- Estate taxation
- Income taxation
- Property taxation
- Exemptions in bankruptcy
- Community property
- Recognition of Same-Sex Marriage
- Medicaid rules
It becomes all the more important for us, as estate planners, to think through things we hear in a national context, to see if they make sense in our local context. Just as all politics is local, all estate planning is local…that is, until the client moves to the next jurisdiction.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
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