Death & Taxes – Is There Any Relief?


Domiciling in a lower-tax state may be the answer, but don’t pack your bags without checking the rules carefully.

Key Takeaways

  • Regardless of income, many believe there are two tax systems in the U.S.—one for the informed and one for the uninformed.
  • Tax mitigation is the second biggest concern of the affluent, after wealth preservation.
  • Domiciling in Florida or other low-tax states has a number of advantages for the affluent—but don’t make this decision without doing your homework.

A New York State circuit court judge in the 1930s and 1940s named the Honorable Learned Hand famously said there were two tax systems in the United States—one for the informed and one for the uninformed.

Much of what he observed still holds true today—and you want to be in the former group.

Tax mitigation has always been a top concern of successful investors, and many of you may have had a big tax surprise back in April because of new laws that took effect in 2013. First, there is a new upper tax bracket of 39.6 percent that’s imposed on singles with $407,000 of taxable income or couples with $457,000. Also, there’s a new capital gains rate of 20 percent that hits singles with $407,000 in taxable income and couples with $457,000. Finally, there’s the new Net Investment Income Tax of 3.8 percent for singles with $200,000 in adjusted gross income (AGI) and couples with $250,000 in AGI.

Don’t forget about estate planning

Obviously you want to review your investment and financial strategies if you are currently or expecting to be in one of those high income tax groups. You also want to review your estate planning. On the federal side, the current estate tax exemption is $5.34 million per person, so if you’re married, that’s over $10.7 million. However, the state of Illinois allows only a $4 million exemption, so if your estate exceeds $8 million, then you’re going to have an additional state estate tax to pay. Illinois also went from a 3 percent income tax to a 5 percent income tax a few years ago.

Relocating to more tax-friendly locales?

To escape the burdensome tax climate of Illinois and many northeastern states, you could consider Alaska. Alaska has no state income tax and no state sales tax, and even gives a $900 dividend every year to every resident who can stick it out—the winters there aren’t easy. Meanwhile, Florida’s winters certainly are more pleasant, and many of you have talked to us about becoming domiciled in Florida—and not just for the sunshine. Florida doesn’t have a state income tax and it doesn’t have separate estate taxes that are different from a federal tax. There’s also more protection from creditors there.

Conclusion

Domiciling in Florida has a number of attractive features, but there are a lot of specific rules around this strategy. Click here for more information about our September 17 and September 18 free seminars about domiciling in other states or call 888-339-5854 to make your reservation. Seating is limited. Next week we’ll interview wealth advisor Rob O’Dell about some of the key Florida-specific domicile issues. We hope to see you at our live events next month.

Until next time, enjoy. Gary

www.coylefinancial.com
800-480-7913 | coyle@coylefinancial.com

We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog.  We welcome your comments via e-mail and look forward to hearing from you.