After you retire, you may no longer wish to reside in California, instead opting for what may be considered a more “senior-friendly” environment. Where you move could have a significant impact on your estate plan. Therefore, it is important to consider the tax consequences of moving to a new state.
If you choose to relocate to a western state—Arizona, Nevada, Oregon, or Washington–you may wish to consider the following:
Which states impose estate taxes?
California, Arizona and Nevada do not tax estates after death. However, Oregon and Washington do.
Oregon taxes all estates valued at more than $1 million. The tax ranges from 10 to 16 percent. If an Oregon resident dies owning property outside the state, the tax is adjusted so tax is collected only on property located in Oregon. In addition, a non-resident is taxed on all property located within the state.
The state of Washington taxes all estates valued at more than $2,193,000. This amount is adjusted annually for inflation. The estate tax ranges from 10 to 20 percent and residents are taxed on all intangible property (property not physical in nature, such as investments and intellectual property) no matter where it’s located, as well as all tangible and real property located within Washington State. A non-resident is taxed only on real and tangible personal property located within the state.
What are the real property tax consequences?
Like California, all other Western states impose property taxes, but in various forms.
Arizona taxes real property annually, based on limited property value and the property’s use. Different property uses have different assessment ratios. For example, residential real property, both owner-occupied and non-owner occupied, is assessed at 10 percent of total value. Arizona exempts widows, widowers, and disabled people with limited income from property taxes. Seniors can freeze property value by application, based on age and average annual income over a three-year period.
By state law, Nevada real property must be reassessed at least once every five years. However, the individual counties calculate the assessed value of real property, including improvements, each July 1. It is calculated based on the taxable value of the real property, which is the cash value of the land and replacement cost of all buildings, minus depreciation of 1.5 percent per year since construction. Change in ownership does not require reassessment. Assessed value is equal to 35 percent of the taxable value. Particular tax rates are based on the tax district where the real property is located, but cannot exceed $3.64 per $100 of assessed value.
Oregon counties assess real property each year. That assessment generally results in two values– real estate market value and a tax assessed value. An owner is generally taxed on the assessed value. That value cannot change by more than 3 percent per year. There is no mandatory reassessment when change of ownership occurs. Low income seniors may defer property taxes.
Washington counties assess real property annually. Physical inspections of real property must take place at least once every six years. Property tax is calculated based on the total assessed value of the real property, which is generally the fair market value. Regular property tax cannot exceed one percent of the assessed value, unless special voter approved assessments are in place. Washington property taxes are further limited by local budgets, which generally cannot increase by more than one percent each year. Low income senior citizens may be eligible for a property tax freeze or deferral.
Obviously, where you live after retirement can have a significant impact on finances and estate planning. Your estate planning attorney can assist you in reviewing positive and negative changes, as well recommending strategies for minimizing the tax impact on your estate.