Federal law permits tax-free bequests up to $1.5 million to non‑spouses and non-charities, as of 2004. Some states, however, have considerably lower thresholds.
Suppose Jim Johnson dies in 2004 and leaves a $1.5 million estate to his daughter. No federal estate tax would be due.
However, his state may allow only $700,000 worth of estate assets to pass, tax-free. If so, the $800,000 balance would be subject to his state’s estate tax.
Perhaps the simplest approach to dealing with this problem is to move from a high estate tax state to an estate tax haven such as Florida, Arizona, California, Nevada, or Texas. If you decide to move to another state to reduce your tax bill, be sure to take all steps necessary to establish your “domicile” in the lower-tax state. For example, move your bank accounts, change your auto registration, and get a driver’s license in your new state.
