Arizona Estate Tax: The #1 Way to Avoid

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Paul Sundin, CPA

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If you have some questions regarding Arizona estate tax, you’re in for a nice surprise. Fortunately, Arizona has no estate tax.

It does not matter how large or small your estate is, Arizona will not be taxing you on it.

But don’t forget, the federal government has an estate tax. If your estate is high enough, there is a chance that you will pay federal estate tax.

Arizona estate tax exemption

Arizona is one of 38 states that does not assess an estate tax. In fact, there are no forms or filing requirements to notify Arizona of your estate at all.

How does the estate tax work?

The estate tax is assessed upon certain states when a person has passed away. It is often referred to as the death tax.

The good news is that it impacts less than 1% of all the estates in the United States. Most people just don’t have a lot of time to accumulate substantial assets. But if you’re estate is large enough, then the federal government will require a state tax filing and payments to be made to the estate before the money is disbursed to any beneficiaries.

Arizona gift tax and inheritance tax

If you have received money from an estate and you live in Arizona or the money in the estate was in Arizona we have some additional good news. There is no inheritance tax in Arizona. In addition there is no gift tax in Arizona.

There are times when gift and estate tax can be assessed at the local level. So make sure you check local statutes.

Federal estate tax planning

Even though Arizona does not assess an estate or gift tax, The federal government certainly does. Once you calculate your gross estate and then deduct any estate deductions and liabilities of the decedent you will come up with a net taxable estate. This amount is then applied to the exemption for the estate tax.

mega rules

Again, very few people are assessed the estate tax because most estates are less than $100,000. But if you have an estate that is $3 million or more it makes sense to check with an estate attorney and tax professional. There are certainly planning strategies that can be implemented to minimize the impact of any estate tax.

How to Eliminate or Legally Avoid the Arizona Estate Tax

The good news is that Arizona does not have an estate tax. But the federal government still does. There are some planning techniques that you are able to implement to reduce any estate tax concerns. You should consider the following:

  • Grantor Retained Income Trusts (GRIT)
  • Intentionally Defective Grantor Trust (IDGT)
  • Donor-Advised Funds
  • 529 Plans
  • Irrevocable Life Insurance Trust (ILIT)
  • Qualified Terminable Interest Property (QTIP)
  • Qualified Personal Residence Trusts (QPRTs) 
  • Grantor Retained Annuity Trusts (GRATs) 
  • Crummey Trusts 
  • Minor Trusts 
  • Special Valuation of Farms and Businesses
  • Charitable Remainder Trusts (CRUT)
  • Dynasty Trusts
  • Charitable Gift Annuity
  • Family Limited Partnerships (FLPs)
  • Grantor Retained Unitrusts (GRUTs)
  • Direct Medical and Tuition Payments 
  • Gifts Below Annual Exemption

Final thoughts

So even though there was no Arizona estate tax, you certainly might have an issue at the federal level. Take a look at some of the tax planning that is available to you by speaking with a tax or legal professional. Many attorneys or CPAs are just not well-versed in estate tax planning, so make sure you do your due diligence to choose the right one.

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