As a firm with an elder law focus, we help people prepare for their senior years, and legacy planning will also be part of this equation. The golden years are highly awaited, and if you take the right financial steps along the way, you can be prepared to enjoy the fruits of your labor.

You can spend quality time with your family, cross things off your bucket list, and enjoy recreational and leisure activities. These years can be a lot of fun, and you should also plan for the twilight years that will follow.

A lot of people here in upstate New York think about retiring to another state where the weather is not so harsh in the winter. The tax situation will enter the decision-making process as well, and we will provide some key information about taxation in this post.

Taxes on Retirement Income

You see piecemeal information about certain states that have favorable tax situations for retirees. For the most part, it boils down to one simple common denominator: the states that have the best environment are states that have no income taxes at all.

It sounds like they are great for retirees per se, but in fact, income that is brought in by anybody of any age is not subject to a state income tax. The states with no income taxes are Florida, Nevada, New Hampshire, Washington, Wyoming, Tennessee, South Dakota, Alaska, and Texas.

State-Level Estate Taxes

Here in New York, we have a state-level estate tax, but most people do not have to worry about it because there is a relatively high credit or exclusion. This is a certain amount that you can transfer before the estate tax would be imposed on the remainder.

The exclusion is $5.85 million this year, and in New York, we have a unique phenomenon called the estate tax exclusion “cliff.” If the value of your estate exceeds the exclusion by five percent or more, the entirety of your estate would be subject to the estate tax.

There is a graduated rate that starts at five percent and maxes out at 16 percent. For your information, the top rate of the federal estate tax is 40 percent, and the exclusion is $11.58 million this year.

A retirement move can make a lot of sense from a financial perspective if your estate is going to be exposed to this tax. There are just 12 states that have estate taxes, so you have a lot of places to choose from if this is a source of concern for you.

There are no state-level estate taxes in Arizona, California, Florida, or Nevada, so these mild weather locations are favorable in this regard. On the downside, real estate in California is exorbitantly expensive.

Hawaii is obviously a dream retirement destination in many ways, but there is an estate tax in the Aloha State. The exclusion is similar to the New York exclusion at $5.49 million this year.

We should point out the fact that there are six states that have inheritance taxes. This is a tax that can be levied on distributions to each individual nonexempt inheritor.

There are no large exclusions, but close relatives are typically exempt from these taxes. The six states with inheritance taxes are New Jersey, Maryland, Iowa, Nebraska, Pennsylvania, and Kentucky. Maryland actually has an estate tax and an inheritance tax.

You don’t necessarily have to live in the states to be exposed to the inheritance tax. For example, if you buy a horse farm in Kentucky, their inheritance tax would be applicable when you leave it to an heir.

Access Our Estate Planning Worksheet

We have developed an estate planning worksheet that you can use to gain a better understanding of the process. It is free, and you can visit our worksheet access page to get your copy.

Need Help Now?

If you are ready to put an estate plan in place, there is no time like the present. You can schedule a consultation appointment if you call us at (585) 546-1734, and can fill out our contact form if you would prefer to send us a message.