West Virginia Estate Tax: Surprising Answers

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Paul Sundin, CPA

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West Virginia has received a variety of migration from other states with higher tax rates. But one that we get a lot is: does West Virginia have an estate tax?

In this article, we will answer that very question. But we will also discuss inheritance tax and gift tax. If you’re a higher income taxpayer, take note of some of your options.

West Virginia estate tax

If you had concerns about West Virginia estate tax, I’ve got some good news. The state does not have an estate tax. This isn’t really that rare. Only 12 states have an estate tax.

But even though you don’t have estate tax in West Virginia, you may certainly have a federal estate tax problem.

Federal estate tax exemption

The IRS levies estate tax for Americans who have estates greater than an exception amount. For calendar year 2021, this is $11.7 million. However, make note that exemptions go up or down every year depending on tax law changes.

The executor first must determine the value of all estate assets. The value of cash, real estate, mutual funds and other assets must be included in addition to cars and boats.

Once the assets have been properly valued, you can deduct mortgages, debts and other obligations. Then you can deduct administrative and funeral and burial costs.

When the net assets are determined, the 40% tax rate is then applied for any amount over the exemption. Be careful because Congress is discussing raising this rate to 45%.

West Virginia inheritance and gift tax

West Virginia also does not have any inheritance tax or gift tax. However, West Virginia citizens can find out that they are subject to inheritance tax in another state. 

For example, if someone passes away in Pennsylvania but you live in West Virginia, you can be assessed tax in Pennsylvania even though you don’t live in the state. This can be very surprising to people who are unfamiliar with the tax rules.

Avoiding the West Virginia Estate Tax

Even though you may not have an estate tax problem in West Virginia, the federal estate tax could still catch you. There are a few planning techniques that you can use to minimize any issues. Make sure to consider the following:

  • Charitable Remainder Trusts (CRUT)
  • Grantor Retained Unitrusts (GRUTs)
  • Qualified Personal Residence Trusts (QPRTs) 
  • Grantor Retained Annuity Trusts (GRATs) 
  • Crummey Trusts 
  • Direct Medical and Tuition Payments 
  • Irrevocable Life Insurance Trust (ILIT)
  • Gifts Below Annual Exemption
  • Qualified Terminable Interest Property (QTIP)
  • Grantor Retained Income Trusts (GRIT)
  • Intentionally Defective Grantor Trust (IDGT)
  • Donor-Advised Funds
  • Dynasty Trusts
  • Charitable Gift Annuity

Who should consider estate planning?

While everybody should consider some form of estate planning, there are certain folks that should be especially concerned about such issues. In fact, many people don’t realize that retirement accounts and life insurance proceeds are also included in a person’s estate. As such, people who have the following assets and considerations should take a close look at some of the planning strategies:

  • Retirement accounts in excess of $1 million
  • People with multiple rental properties
  • Partners in passive activities
  • People with life insurance policies of at least $1 million
  • People who stand to receive a large inheritance
  • Business owners and entrepreneurs
  • Medical and healthcare professionals
  • CPAs, engineers, IT professionals
  • Consultants with significant earning potential

West Virginia tax environment

Estate tax is often referred to as the death tax. Fortunately, West Virginia residents don’t need to worry. But they should be concerned about any federal estate tax. This can trap unsuspecting taxpayers. 

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