estate and inheritance taxes

[Brat]

Ah, now I understand why the family of a neighbor moved her to Vancouver, Washington from Portland when she couldn't live alone.

[MrsHaloFIRE]

State of PA held up my security clearance. I did live there but I didn't work while we were there. Pretty hard to prove and a sticky wicket for that ckearance. Screw PA

[perinova]

so all taxes, estate or inheritance, are due in the deceased state, do I conclude incorrectly that the heir doesn't need to inform his/her state of received inheritance?

[RetireeRobert]

Quote:

Originally Posted by perinova so all taxes, estate or inheritance, are due in the deceased state, do I conclude incorrectly that the heir doesn't need to inform his/her state of received inheritance?

Generally, I would say inheritors who inherit from an out-of-state deceased do not need to say anything to the inheritor's own state.

But never say never. What state do you live in? Google your own state's inheritance laws and see if their is any mention.

[perinova]

Quote:

Originally Posted by RetireeRobert Generally, I would say inheritors who inherit from an out-of-state deceased do not need to say anything to the inheritor's own state. But never say never. What state do you live in? Google your own state's inheritance laws and see if their is any mention.

Hi Robert. I am in CA at the present time, but that is purely hypothetical. I am just learning about this process. It may become helpful on deciding where to live.

[RetireeRobert]

Quote:

Originally Posted by perinova Hi Robert. I am in CA at the present time, but that is purely hypothetical. I am just learning about this process.

I found this on California. CA has a state estate tax but no state inheritance tax.

So I think you are ok to be the recipient of an inheritance from an out-of-CA decedent--you will not owe California any inheritance tax. Furthermore, you will not owe them any estate tax either. Estate taxes anyway are obligation of the estate and not obligations of the heirs.

https://www.financialplannerla.com/c...ia-estate-tax/

[Winemaker]

I told DW, if I get an incurable disease, we buy a winery in CA. Hopefully, I live more than 6 months, to become a CA resident. In that case, I should evade PA estate tax to heirs other than DW. The onerous income taxes of CA should outweigh any estate taxes DW would pay after her death, assuming I go first.

[cathy63]

Quote:

Originally Posted by RetireeRobert I found this on California. CA has a state estate tax but no state inheritance tax... https://www.financialplannerla.com/c...ia-estate-tax/

California does not have a state estate tax or state inheritance tax. If you reread that article, you'll see that's what it says, but the section headers are very poorly written so it's easy to come to the opposite conclusion.

[RetireeRobert]

Quote:

Originally Posted by cathy63 California does not have a state estate tax or state inheritance tax. If you reread that article, you'll see that's what it says, but the section headers are very poorly written so it's easy to come to the opposite conclusion.

Yes, you are correct.

At any rate I pointed out an heir inheriting assets from an out-of-California decedent would "not" owe any estate tax to California in any case (even if they did have one.)

[ncbill]

Quote:

Originally Posted by pb4uski The relevant factor is where the decedent was resident, not where the trust is organized. If the decedent lived for more than 186 days in a state with an estate tax, absent circumstances that indicate otherwise, the state will want its cut.

I'm just not seeing it...e.g. take Bill Smith in PA.

Bill chose to domicile his revocable living trust with the out-of-state law firm he used to set it up & picked a lawyer there to serve as successor trustee.

Bill dies, but because he properly funded the trust all his assets are contained therein, so an estate is never opened.

Any distribution of assets to beneficiaries is handled by the out-of-state trustee.

How would the state of PA ever know?

[Souschef]

NCBill,
The problem I ran into was my MIL lived in PA, and had a lawyer there drew up her will. I think he was ethically bound to file an estate return to PA.

[RetireeRobert]

Quote:

Originally Posted by Souschef NCBill, The problem I ran into was my MIL lived in PA, and had a lawyer there drew up her will. I think he was ethically bound to file an estate return to PA.

Just because he drew up the will does not mean he was engaged to handle the probate. if family never hired him to handle the probate, he would have no responsibility or requirements whatsoever.

[rk911]

Quote:

Originally Posted by perinova so all taxes, estate or inheritance, are due in the deceased state, do I conclude incorrectly that the heir doesn't need to inform his/her state of received inheritance?

that's my understanding.

[teej1985]

Quote:

Originally Posted by Brat Ah, now I understand why the family of a neighbor moved her to Vancouver, Washington from Portland when she couldn't live alone.

Is Washington's any better?

https://dor.wa.gov/taxes-rates/other...ate-tax-tables

[RetireeRobert]

Quote:

Originally Posted by teej1985 Is Washington's any better? https://dor.wa.gov/taxes-rates/other...ate-tax-tables

Washington has over double the estate tax exemption that Oregon has. Oregon anything over $1 million gets taxed. Washington I think the exemption is $2.2 million.

[SecondCor521]

Quote:

Originally Posted by ncbill I'm just not seeing it...e.g. take Bill Smith in PA. Bill chose to domicile his revocable living trust with the out-of-state law firm he used to set it up & picked a lawyer there to serve as successor trustee. Bill dies, but because he properly funded the trust all his assets are contained therein, so an estate is never opened. Any distribution of assets to beneficiaries is handled by the out-of-state trustee. How would the state of PA ever know?

Two things:

1. I don't think trusts have domiciles. I think only people have domiciles.

2. If Bill lives in Pennsylvania, it's tax fraud by the trustee. ("How would they ever know?" can often be a tip that fraud is involved.) And if the trustee is a lawyer, they could get disbarred.

I find it hard to imagine a scenario where the out of state trustee lawyer person wouldn't know that Bill lived in Pennsylvania. Bill flies out of state and pays the attorney in cash? Only reviews the documents via email? Doesn't have his address listed in the trust document? Flies to the attorney to sign the papers? Never mentions in chitchat how he's a Steelers fan?

[MRG]

Quote:

Originally Posted by ncbill I'm just not seeing it...e.g. take Bill Smith in PA. Bill chose to domicile his revocable living trust with the out-of-state law firm he used to set it up & picked a lawyer there to serve as successor trustee. Bill dies, but because he properly funded the trust all his assets are contained therein, so an estate is never opened. Any distribution of assets to beneficiaries is handled by the out-of-state trustee. How would the state of PA ever know?

Does a death certificate get filed? PA knows.

Eta: doesn't matter where Bill dies he's a resident of the Commonwealth of Pennsylvania.

Eta2:The Commonwealth reached out and locked my assets in an electronic sub-second when my DFs trust wired me money.

[Koolau]

We are all responsible to know and follow our state-of-residence's laws, including their estate-tax laws. I WOULD consider moving states if doing so would be sufficiently advantageous, tax wise. Oh, and states will come after you if you fail to follow their rules. Only thing that angers me is when states try to get what is not theirs (claiming you are a resident when you are not.) YMMV

[ncbill]

Quote:

Originally Posted by SecondCor521 Two things: 1. I don't think trusts have domiciles. I think only people have domiciles. 2. If Bill lives in Pennsylvania, it's tax fraud by the trustee. ("How would they ever know?" can often be a tip that fraud is involved.) And if the trustee is a lawyer, they could get disbarred. I find it hard to imagine a scenario where the out of state trustee lawyer person wouldn't know that Bill lived in Pennsylvania. Bill flies out of state and pays the attorney in cash? Only reviews the documents via email? Doesn't have his address listed in the trust document? Flies to the attorney to sign the papers? Never mentions in chitchat how he's a Steelers fan?

If Bill's intent is to rook the state of PA out of its inheritance tax presumably he asks that out-of-state lawyer if their duty to pay PA inheritance tax takes precedence over their duty to the beneficiaries.

If so, Bill just picks someone out-of-state, say his younger sister Betty as successor trustee instead.

Or since he's getting along in years he simplifies things by making her co-trustee & so everything related to the trust already goes through her.

When he dies she gets a new tax ID for the now irrevocable trust, cleans out & arranges for his house to be sold, & after receiving those proceeds transfers whatever's left in the trust to the beneficiaries, all of which likely happens before:

The first PA's tax authority knows about his death is when they receive his final personal tax return, as late as October 15 the following year.

And they never see a trust return.

[SecondCor521]

Quote:

Originally Posted by ncbill If Bill's intent is to rook the state of PA out of its inheritance tax presumably he asks that out-of-state lawyer if their duty to pay PA inheritance tax takes precedence over their duty to the beneficiaries. If so, Bill just picks someone out-of-state, say his younger sister Betty as successor trustee instead. Or since he's getting along in years he simplifies things by making her co-trustee & so everything related to the trust already goes through her. When he dies she gets a new tax ID for the now irrevocable trust, cleans out & arranges for his house to be sold, & after receiving those proceeds transfers whatever's left in the trust to the beneficiaries, all of which likely happens before: The first PA's tax authority knows about his death is when they receive his final personal tax return, as late as October 15 the following year. And they never see a trust return.

My understanding is that lawyer's ethics obligations are higher than their obligations to any client. I think any decent lawyer able to set up the trust as you describe would know that they were risking disbarment. I find it highly unlikely they would take that risk for one out of state client. And if they did, I doubt it would be smart for Bill to hire them - what if the lawyer absconds with the money? They've already proven themselves unethical, and they're smart and a lawyer besides, and who would ever know, right?

If Betty gets involved, she risks the wrath of the state of PA. Although she's less capable than the lawyer, she still could run off with the money or distribute it "incorrectly" - who would ever know?

If the house is in PA (which we've established it is, I thought), it'll be subject to PA's estate/inheritance laws. So does Betty or the lawyer file an incomplete / incorrect estate / inheritance filing with the state? More fraud. Also, PA then knows about the death. You're surely not the first person to think of this idea, so it wouldn't surprise me if PA audits returns where just one paid off house is listed as an asset but no other money is. (I suppose Bill could sell his house and rent or move into a retirement home and rent.)

It wouldn't surprise me in the least if PA subscribes to the Social Security death notification list. Most funeral homes submit the death notification to Social Security within days of the person dying, and I think subscribers to that notification get notified rather quickly - it may even be daily. So they probably know Bill is dead before he's even been buried.

So now we have a choice: Bury Bill's body ourselves (probably a felony) and don't notify SS (we get Bill's continued SS then, but probably another felony), or bribe the funeral home not to report the death to SS (fraud, unlikely to go along with this).

I agree with you that they wouldn't see a federal trust return.

...

Just to be clear, I have no dog in the fight. Nobody in my family lives in PA. I'm just jousting with you to help maintain my mental faculties and to help you think it through in case you're seriously considering this idea.

I'm actually a big fan of exploiting loopholes that really exist. Exploring potential loopholes is a way to find actual ones. Again, most of the time someone else has thought of a loophole before we have, and the government or private industry has put in measures to close them. Sometimes, the way they close the loophole is through a generic "fraud" law - you can't lie or cheat to gain a financial advantage, and if they catch you there are those penalties, which in the case of fraud can I believe include prison time. No thanks, not worth the risk for me, but obviously people get convicted of fraud (Bernie Madoff), and I'm sure some number get away with it.