Nevada is a popular state with significant migration. The good news is that Nevada does not impose an estate tax. It is one of 38 states that do not impose such a levy.
But don’t forget about the federal estate tax. It may be applicable depending on how large of an estate a decedent had. Any beneficiaries must consider the federal exemption even if they have assets in the state of Nevada.
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Nevada estate tax
As stated, Nevada does not have an estate tax. It is a very friendly taxing state and collects substantial income from the gambling Industry. As a result, they have large gambling tax receipts and they pass those savings down to their residents.
Estate tax planning
Federal, state and local governments will often assess a state tax on someone who recently dies. This is often called the death tax. But it will not apply to everybody who passes away. Only states that have assets that exceed the applicable exemption amount will have to pay it.
In reality, the vast majority of Nevada citizens will not have to pay any estate tax at all. But that doesn’t mean that you shouldn’t understand the rules and how they’ll work in your situation.
Many people with small estates at a certain point can find their estates growing very large. In addition, federal changes to the estate tax are forthcoming. The lowering of the exemption can catch many unsuspecting taxpayers.
Nevada gift tax and inheritance tax planning
Since Nevada collects so much in gaming taxes, they do not impose an inheritance tax or a gift tax. That’s why Nevada is such a tax friendly state.
The good news also is that the IRS does not impose an inheritance tax. This is a tax that is assessed when beneficiaries receive money from an estate. But even if inheritance tax is not relevant at the federal level, it still could be applicable to you depending on what state you live in and what state the assets were located.
Federal estate tax
The IRS does impose an estate tax. But only if you have assets above the exemption amount. This exemption amount changes year-by-year so make sure you use the applicable threshold.
But fewer states will have to pay any estate tax. It is not assessed against the beneficiary, but against the assets in the estate before it is distributed out to any heirs.
What this means is that the recipient of the estate assets does not have to pay any tax. They are paid by the estate prior to distributing the funds.
The estate tax calculation is actually not that complex. You just take the gross estate assets, then deduct any mortgages, credit cards, or any other debts. Then you reduce this amount by certain administrative expenses and funeral costs.
The resulting amount above the exemption is taxed at approximately 40%, but there are discussions at the federal level regarding increasing this percentage.
How to Avoid the Nevada Estate Tax
For a variety of reasons, you might not have a current estate tax issue. But you may find that at some point it becomes a problem. There are a handful of strategies that can be implemented to lower estate issues. Make sure you review the following:
- Revocable Grantor Trusts
- Irrevocable Life Insurance Trust (ILIT)
- Grantor Retained Unitrusts (GRUTs)
- 529 Plans
- Direct Medical & Healthcare Payments
- Qualified Personal Residence Trusts (QPRTs)
- Donor-Advised Funds
- Minor Trusts
- Charitable Gift Annuity
- Direct Tuition Payments
- Family Limited Partnerships (FLPs)
- Charitable Remainder Trusts (CRUT)
- Grantor Retained Income Trusts (GRIT)
- Grantor Retained Annuity Trusts (GRATs)
- Crummey Trusts
- Special Valuation of Farms and Businesses
- Gifts Below Annual Exemption
- Qualified Terminable Interest Property (QTIP)
- Dynasty Trusts
- Intentionally Defective Grantor Trust (IDGT)
When should you consider estate planning?
Estate planning can be challenging. But everybody should consider it in one form or another. As such, people in the following situations should examine some of the above techniques:
- Folks with life insurance policies of at least $1 million
- People who stand to receive a large inheritance
- Medical and healthcare professionals
- CPAs, engineers, IT professionals
- Retirement accounts in excess of $1 million
- People with multiple rental properties
- Partners in passive activities
- Business owners and entrepreneurs
- Consultants with significant earning potential
Thanks to no state income tax, Nevada does not tax Social Security benefits or any other retirement accounts. This makes it a great place for retirees.
Nevada also has low property tax rates which will usually be half of 1% to 1% of assessed value.
But Nevada does have a relatively high sales tax a state rate is around 7% but goes to approximately 8% when you consider local tax rates.
So even though Nevada does not have an estate tax, gift tax, or inheritance tax, it does not mean that she won’t have a problem at the federal level. A qualified CPA or legal professional can help you maneuver the estate tax laws and exemption amounts.