Mississippi residents are faced with a number of state taxes. We all know about income tax and property tax. But what about inheritance tax, estate tax and gift tax?
In this article, we take a look at many of the different taxes residents are faced with. But we will focus on estate tax because that can be a big issue for people with substantial assets.
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Mississippi estate tax
Thankfully, Mississippi does not have an estate tax. Most states do not have one as there are only 12 states that assess an estate tax.
But even though Mississippi does not have an estate tax, the IRS does assess one. But since the exemption is very high, less than 1% of estates have to pay it.
What about the federal estate tax?
The federal estate tax is often referred to as the death tax. Now this is not the technical term, but is what it is often called.
Many people believe that the estate tax is very complicated. I’m certainly not suggesting it is easy. But in theory, it is very straightforward. Once you get into the details relating to valuation it can get a little complex.
The executor must summarize all estate assets. The next step is value the assets with a variety of techniques. All valuations should be completed as of the date of death, unless an alternate valuation date is selected.
Once the asset values have been obtained, the executor can deduct debt and other obligations. This includes mortgages, medical expenses and certain other liabilities of the decedent.
The executor can also deduct certain other costs. This usually is legal fees, tax preparation fees, and funeral and burial related costs.
The net assets of the estate are then subject to a tax rate of approximately 40% (for the amount over the exemption). Because this rate is so high, the executor should do everything in their power to reduce any estate liability.
Mississippi inheritance and gift tax exemption
I’ve got more good news for you. Mississippi does not have any inheritance tax nor does it have a gift tax.
However, if a Mississippi resident receives inheritance from another state it might be subject to tax in that state. Many people don’t realize that certain states will assess inheritance tax and it will be applied to people who receive inheritance in other states. This can be very frustrating when people realize this.
Strategies to Legally Avoid the Mississippi Estate Tax
You may not currently have an estate tax problem. But that can quickly change. You may not think you have an issue, but that doesn’t mean you shouldn’t consider some planning strategies. Your estate attorney or CPA can help you consider the following:
- Grantor Retained Unitrusts (GRUTs)
- 529 Plans
- Direct Medical & Healthcare Payments
- Qualified Personal Residence Trusts (QPRTs)
- Donor-Advised Funds
- Revocable Grantor Trusts
- Irrevocable Life Insurance Trust (ILIT)
- Grantor Retained Annuity Trusts (GRATs)
- Crummey Trusts
- Minor Trusts
- Special Valuation of Farms and Businesses
- Gifts Below Annual Exemption
- Qualified Terminable Interest Property (QTIP)
- Dynasty Trusts
- Charitable Gift Annuity
- Direct Tuition Payments
- Family Limited Partnerships (FLPs)
- Charitable Remainder Trusts (CRUT)
- Grantor Retained Income Trusts (GRIT)
- Intentionally Defective Grantor Trust (IDGT)
Who needs estate tax planning?
While everyone needs to consider estate planning, it is critical for some folks. If you fall into one of these categories, you might need to get started right away:
- Large stock, bond, or mutual funding holdings
- Stand to inherit large sums of money
- Own a business or are an entrepreneur
- Life insurance policies over $1 million
- Retirement assets over $1 million
- Significant real estate holdings
- Professional occupation or high-earner
Overall Mississippi tax structure
Now Mississippi does have real estate taxes and state income tax, but they don’t have many of the estate related taxes.
This makes Mississippi a moderately tax friendly state. Also, if someone has a large estate it can make more sense to reside in Mississippi compared to other tax jurisdictions.