Considerations You Need To Make About Places To Retire

Very few people decide to retire to a particular state solely because of tax reasons. Most people select a retirement community because of friend­ships, relatives or lifestyle, a warm climate, a slower pace, etc. But you can combine taxes and other reasons if you do a little planning. However people often forget to factor in estate taxes in thinking about a retirement state.


Minimizing Estate Tax The best states to retire to are those that have what is known as a pick-up tax for estate tax purposes. Check with your financial advisor as to the current status of each state you consider. for the lowest amount of death tax a state imposes. The low-tax states which impose a pick-up tax are: . Alabama, Alaska, Arizona, Arkansas, Cal­ifornia, Colorado, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Maine, Minnesota, Missouri, Nevada, New Mexico, New York, North Dakota, Oregon, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wiscon­sin, Wyoming.

The Generation-Skipping Tax Some states that have a pick-up tax impose a generation-skipping tax, similar but in addition to the federal generation-skipping tax. A genera­tion-skipping tax taxes gifts and bequests that bypass a generation of heirs. A gift that goes from a grandparent to his/her grandchild is a generation-skipping gift because it bypasses the parent’s generation. The govern­ment is deprived of the tax in the parent’s genera­tion, so it taxes the original gift to make up for this.

Most states have an exemption from the gen­eration-skipping tax for a certain amount of generation-skipping gifts. In some states, the generation-skipping exemption is that high, but in others it is not. The states that impose a generation-skipping tax are: .Alabama, Arizona, California, Colorado, Florida, Illinois, Missouri, Nevada, Rhode Island, South Carolina, Texas, Virginia, Washington.

If you’re planning to make very large gifts di­rectly to your grandchildren, you might want to avoid a generation-skipping-tax state.