North Dakota Estate Tax: A Planning Guide {Ironclad Strategies}

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Paul Sundin, CPA

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North Dakota is known for its cold weather and for bordering Canada. But it has seen a lot of migration recently as people move from cities to rural areas.

But questions regarding taxes persist. What is the estate tax in North Dakota? Is there an inheritance tax or gift tax?

In this post, we will tackle these issues and also give you a brief overview of how the federal estate tax works.

North Dakota estate tax

The good news is that North Dakota does not have an estate tax. This is really not that surprising because only 12 states in the country have an estate tax.

But just because there is no state level estate tax doesn’t mean that North Dakota residents are not subject to the federal estate tax. With tax rates as high as 40%, this can impact a lot of folks.

Federal estate tax rates and exemption

The federal estate tax only impacts approximately 1% of all households in America. So very few people are really impacted by it. Some refer to is as the “death” tax. But there is greater discussion these days of increasing the tax rate and also decreasing the exemption amount.

Here’s how the federal estate tax works. When someone passes away, the value of all their assets is aggregated. This includes business interests, cars and boats, cash, stocks and bonds, and even retirement accounts.

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Once the gross estate is valued, any liabilities of the estate are then subtracted. The executor can also deduct from the gross estate certain administrative, legal and professional fees along with funeral costs.

For amounts above the exemption, the net estate is essentially taxed at 40%. Because the rate is so high, you should do everything legally possible to reduce the estate liability.

Gift tax and inheritance tax exemption

I’ve got more good news for you. There is no inheritance tax nor is there any gift tax in North Dakota.

But just because there is no inheritance tax does not mean that a North Dakota resident could be subject to an inheritance tax in another state.

For example, if a North Dakota citizen received an inheritance from an estate in Pennsylvania they would be subject to inheritance taxes in Pennsylvania.

So even though North Dakota does not have an inheritance tax other states can assess tax against citizens who reside in other states.

Planning to Avoid the North Dakota Estate Tax

You may not have an estate tax issue. But that might change. Your lawyer or CPA can help you address the following planning ideas:

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

Who needs to start estate planning?

While everybody must begin some form of estate planning, it is critical for many people. Should you fall into one of the following groups, you should get started immediately:

  • Life insurance policies over $1 million
  • Own a business or are an entrepreneur
  • Significant rental property holdings
  • Retirement plan assets over $1 million
  • Stand to inherit large sums of money
  • Large stock, bond, or mutual fund holdings
  • Professional occupation and high-earner

Estate Tax Return: Understanding the Rules, Limits & Requirements

If you pass away and have an estate valued over the estate exemption amount, you should file Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return. A few are to consider:

  • If your estate is below the exemption, you do not have to file an estate tax return (except for purposes of electing portability).
  • You must file Form 706 by nine months after the date of the death. If you are unable to complete it by the deadline, you are able to request an extension. Make sure to complete Form 4768 to apply for an automatic 6-month extension of time to file. 
  • Another word about portability…the executor may only transfer the “DSUE” amount to a surviving spouse if Form 706 is filed before the deadline. 

North Dakota tax situation

North Dakota is probably middle of the road when it comes to taxes. Property tax rates are typically around 1% of assessed value.

North Dakota residents get a homestead credit if their income is below a certain threshold. North Dakota’s sales tax at the state level is 5%. However, cities and counties can collect an additional 3 1/2%. This can push the overall state rate as high as 8 1/2%.

North Dakota remains a beautiful state with a moderate tax structure. Make sure you talk about your situation with your CPA or your estate attorney.

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