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June 2013 ALB Office Closings
Please be advised that we are changing our
hours for the Summer
Effective May 31, 2013 thru Labor Day
Monday thru Thursday - 8:30 am to 5:00 pm
Friday - 8:30 am to 2:00 pm
Mark Milbrod, CLU
What's your STATE of mind?
Great News!!! Thanks to the American Taxpayer Relief Act of 2012, the exemption for Federal Estate Taxes has been permanently placed into law at the $5,000,000 per individual level. With that a lot of us said great, so much for our Estate Protection/Planning business. In fact, when I speak to a lot of advisors, they have basically thrown in the towel.
That's a HUGE mistake. There is so much opportunity. There are currently fifteen states that have their own Estate/Inheritance taxes. And guess what, New Jersey is one of them. Who would have guessed that? New Jersey with another tax...that's a shocker. The other states are CT, DC,HI,IL, ME,MD,MA,MN,NC, NY,OR,RI,VT and WA. The following charts shows by State, their corresponding exemption limits and top tax rates:
|
ST |
Exemption |
Top Rate | |
CT |
$2,000,000 |
12% | |
DC |
$1,000,000 |
16% | |
HI |
$5,250,000 |
16% | |
IL |
$4,000,000 |
16% | |
ME |
$2,000,000 |
12% | |
MD |
$1,000,000 |
16% | |
MA |
$1,000,000 |
16% |
|
MN |
$1,000,000 |
16% | |
NC |
$5,250,000 |
16% | |
NJ |
$675,000 |
16% | |
NY |
$1,000,000 |
16% | |
OR |
$1,000,000 |
16% | |
RI |
$910,725 |
16% | |
VT |
$2,750,000 |
16% | |
WA |
$2,000,000 |
19% |
Where is the opportunity? Most people didn't pay much attention to this because previously for taxable estates above the old federal exemption limits, there was a credit for the individual State tax on the federal level, so it was basically washed out. Now, with the higher federal exemption limit, there is no longer a wash out via the credit, so it's very real today in the States listed above. We have a seen a trend of selling more smaller sized Survivorship or Individual Life Insurance contracts to offset these individual State tax liabilities. Let's take New Jersey for example. If we look at the above chart, a taxable estate above $675,000, 16% of tax must be paid to New Jersey for amounts in excess of that figure. Here's an example:
Taxable Estate: $2,000,000
Less Exemption: (675,000)
Taxable Base: $1,325,000
x NJ Tax Rate: 16%
TAX DUE: $212,000
A Life Insurance policy for that amount won't be too costly, but will help you open up sales opportunities. Add retirement assets to the equation and there will be income taxes due as well, which yields a larger tax liability and a need for additional death benefit.
Other things to consider:
- Unlike the federal estate tax code, individual States do not provide portability of Estate Taxes. So any unused portion of exemption does not roll to a surviving spouse.
- These policy face amounts are typically smaller and will go through underwriting a lot quicker.
- Estates will grow over time so in the example above, the need was only $212,000 but will likely be higher over time, resulting in a higher initial death benefit.
- No need to establish trusts that typically slow down the sales process.
- Policies can build cash value.
- Great door opener!
I'm a firm believer that with every change of the wind, there is opportunity. I have worked with many advisors that have incorporated this into their everyday practice and have reaped the rewards on a grand scale. Incorporate this into your practice and see What STATE of mind you'll be in.
Happy Selling!
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