Many people are relocating to Utah thanks to beautiful scenery and excellent skiing. But before you purchase assets in the state like real estate, you may want to consider whether or not Utah has an estate tax, gift tax or inheritance tax.
In this post, we will take a look at some of the tax considerations if you live in Utah or have assets in Utah.
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Utah estate tax planning
Fortunately, Utah does not assess an estate tax. It’s actually is not that uncommon. Only 12 states have an estate tax.
In general, Utah is a low taxing environment. But even though there is no estate tax in Utah, you may be assessed estate tax at the federal level.
Federal estate tax planning
I’ve got more good news for you. Even though there is a federal estate tax, most estates will be under the exemption amounts. Less than 1% of all the states fall subject to the estate tax.
But we will walk through how it is calculated. The first step is to aggregate all the estate assets. This includes mutual funds, real estate, other investments, and personal items. This also can include certain business interests and closely held companies. Evaluating these assets can be challenged for the executor.
But once assets have been identified and properly valued, you can deduct any estate debts. This includes car loans, mortgages, credit cards, and other debts.
Once the estate is reduced for these items, the executor can then offset this amount with administrative costs and funeral related expenses. The result is the net estate amount.
Once the net estate is calculated, you then just compare this to the exemption. Any amount that exceeds the exemption is generally taxed at about 40%. But be careful. Tax laws are ever-changing and there is a threat that this tax rate amount can go up in subsequent years.
How to Legally Avoid or Reduce the Utah Estate Tax
Because Utah does not impose an estate tax, you are in good shape. But the federal estate tax could still trip you up (even though few actually have a problem). There are several planning strategies that can be implemented to reduce estate tax concerns. Make sure you address the following with your CPA:
- Crummey Trusts
- Dynasty Trusts
- Donor-Advised Funds
- Grantor Retained Unitrusts (GRUTs)
- 529 Plans
- Special Valuation of Farms and Businesses
- Family Limited Partnerships (FLPs)
- Charitable Remainder Trusts (CRUT)
- Grantor Retained Income Trusts (GRIT)
- Charitable Gift Annuity
- Irrevocable Life Insurance Trust (ILIT)
- Gifts Below Annual Exemption
- Qualified Terminable Interest Property (QTIP)
- Qualified Personal Residence Trusts (QPRTs)
- Grantor Retained Annuity Trusts (GRATs)
- Intentionally Defective Grantor Trust (IDGT)
- Direct Medical and Tuition Payments
- Other Revocable and Irrevocable Trust Structures
Who should consider estate tax planning?
While every citizen should consider estate planning, there are certain types of people in a few professions that should be especially concerned. Many people fail to realize that retirement accounts and life insurance must also be included in an estate.
As a result, anybody with the following assets and situation should closely examine some of the planning strategies:
- CPAs, tax and legal professionals, engineers, IT professionals
- People who stand to receive a large inheritance
- Business owners and entrepreneurs
- Medical and healthcare professionals
- Retirement accounts in excess of $1 million
- People with life insurance policies of at least $1 million
- People with multiple rental properties
- Partners in passive activities
- Consultants with high earning potential
Utah tax environment
Utah is a friendly tax state, you need to make sure that you identify income tax rates, real estate, and sales tax which can be a large one consideration for many people.
If you were concerned about Utah estate tax, hopefully this is good news to you. But with the considerations of federal estate tax, make sure you hire a qualified attorney or CPA to address the issues with you.
Estate planning should be implemented while he decedent is still alive. That doesn’t mean that you can’t do anything once a person has passed away. But if you plan years in advance it can go along way to mitigating any tax issues.