Our clients in New Hampshire often have tax questions. Many are familiar with the income tax rates. But questions persist when it comes to other taxes assessed in New Hampshire.
The purpose of this post is to address questions regarding New Hampshire estate tax, gift tax, and inheritance tax. We might have some surprising news for you.
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New Hampshire estate tax
The good news is that New Hampshire is one of 38 states that does not have an estate tax. This is great if you have sizable assets.
However, the federal estate tax might still be applicable to you. It just depends on the valuations of your estate and the current federal tax exemption.
What about the federal estate tax?
The federal estate tax is in theory a simple process. The most challenging aspect is valuing all estate assets.
The first step for the executor is to determine all applicable assets. The assets will be valued as of the date of death.
In theory, this should be easy for stocks bonds and mutual funds. But it gets a little bit more complex for business owners.
Depending on what type of assets and the size of the estate, the executor may need to hire an appraiser. This is usually just applicable to real estate, farms, and business interests.
Once the proper value is determined, the executor can subtract out the estate debts and obligations. In addition, they can subtract legal, accounting and other costs. The result is what we would call the net estate.
An estate tax of 40% is then applied against the net assets of the estate above the exemption amount. The resulting tax liability can be substantial so make sure you do everything you can to avoid it.
What about New Hampshire inheritance tax and gift tax?
Most states that have no estate tax also have no gift tax. This is true in New Hampshire. In addition, New Hampshire does not have an inheritance tax.
But be careful. New Hampshire residents can find themselves owing inheritance tax for money they received from a different state. Only seven states have an inheritance tax, and if you receive money from someone who passed away in one of the states you could have an issue.
Top Strategies to Mitigate the New Hampshire Estate Tax
You may not think you have an estate tax problem. But situations can and do change often. As such, everyone should do some sort of estate planning. Your CPA and estate attorney can review the following concepts with you:
- Revocable Grantor Trusts
- Irrevocable Life Insurance Trust
- Grantor Retained Annuity Trusts
- Grantor Retained Unitrusts
- Direct Medical & Healthcare Payments
- Dynasty Trusts
- Charitable Remainder Trusts
- Grantor Retained Income Trusts
- Intentionally Defective Grantor Trust
- Charitable Gift Annuity
- Direct Tuition Payments
- Family Limited Partnerships
- Minor Trusts
- Qualified Personal Residence Trusts
- Donor-Advised Funds
- Special Valuation of Farms and Businesses
- Gifts Below Annual Exemption
- Qualified Terminable Interest Property
Who should consider estate planning?
It is imperative for many people with certain assets and in certain lines of work to consider estate planning. If you fall into one of the following groups, you may want to get a head start:
- Life insurance policies over $1 million
- Stand to inherit large sums of money
- Own a business or are an entrepreneur
- Retirement plan assets over $1 million
- Significant real estate (rental property) holdings
- Large stock, bond, or mutual fund holdings
- Professional occupation and high-earner
Estate tax return requirements
When you have an estate above the estate exemption amount, you are required to file Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return. A few critical points to note:
- If your net assets (net estate) is less than the exemption, you do not have to file an estate return (except to elect portability).
- Regarding the portability issue, an executor can transfer the “DSUE” amount to a surviving spouse if Form 706 is timely filed.
- You are required to file Form 706 timely and within nine months after the date of death. If you are unable to file by the deadline, you can file an extension. Complete Form 4768 to apply for a 6-month extension.
New Hampshire tax assessment
New Hampshire is a moderately friendly tax state. The state has property taxes and state income tax. The fact that they have no estate tax, inheritance tax or gift tax makes it more tax friendly.