In Arizona, you can enjoy the benefit of having no estate tax, regardless of your estate’s worth.
This allows you to freely plan your estate without the worry of state obligations.
However, keep in mind that the federal estate tax might still apply if your estate’s value surpasses a certain threshold.
To ensure your financial planning is secure and well-rounded, it’s a wise decision to consult with a financial advisor.
With their guidance, your estate plan can be tailored to suit your needs and circumstances, providing peace of mind and financial security for your future.
Arizona Estate Tax
As a resident of Arizona, rest assured that no estate tax exists in the state. This is the case for 38 states.
Understanding the Estate Tax
The estate tax applies to specific estates once an individual passes away, and can be known as the “death tax.”
This tax is distinct from the inheritance tax, which affects those who receive money from the estate after its distribution.
Arizona Inheritance Tax and Gift Tax
In Arizona, there is no inheritance tax, but it’s crucial to be aware of other states’ laws if a loved one resides elsewhere.
For example, Pennsylvania has an inheritance tax that may affect out-of-state heirs.
Similarly, there is no gift tax in Arizona. However, the federal gift tax exemption for 2022 is $16,000 per person annually and $17,000 per person annually in 2023.
If you gift more than this amount to a single person within a year, it will reduce your lifetime exemption of $12.92 million.
So, plan your gift-giving accordingly.
Federal Estate Tax
Federal Estate Tax Rates
Although there is no estate tax in Arizona, it’s crucial to be aware of the federal estate tax that might apply to your estate.
The federal estate tax exemption has increased from $12.06 million in 2022 to $12.92 million in 2023.
This tax benefits married couples as it is portable; with proper legal measures, they can shield up to $25.84 million once both spouses have passed away.
When an estate’s value surpasses this exemption limit, the highest federal tax rate that could be levied is 40%.
Here’s a concise table demonstrating federal estate tax rates:
| Taxable Estate Range | Base Taxes Paid | Marginal Rate | Rate Threshold |
|---|---|---|---|
| $1 – $10,000 | $0 | 18% | $1 |
| $10,000 – $20,000 | $1,800 | 20% | $10,000 |
| $20,000 – $40,000 | $3,800 | 22% | $20,000 |
| $40,000 – $60,000 | $8,200 | 24% | $40,000 |
| $60,000 – $80,000 | $13,000 | 26% | $60,000 |
| $80,000 – $100,000 | $18,200 | 28% | $80,000 |
| $100,000 – $150,000 | $23,800 | 30% | $100,000 |
| $150,000 – $250,000 | $38,800 | 32% | $150,000 |
| $250,000 – $500,000 | $70,800 | 34% | $250,000 |
| $500,000 – $750,000 | $155,800 | 37% | $500,000 |
| $750,000 – $1 million | $248,300 | 39% | $750,000 |
| Over $1 million | $345,800 | 40% | $1 million |
*The taxable estate refers to the amount above the federal exemption of $12.92 million.
**The rate threshold indicates the level where marginal estate tax rates begin.
To illustrate how this works, imagine you are single, and your estate is worth $18.74 million.
By deducting the exemption of $12.92 million, your taxable estate will be $5.82 million.
Referring to the table above, the estate in the highest bracket will firstly require a base tax payment of $345,800 on the initial $1 million.
Following that, there is a 40% tax on the remaining $4.82 million, totaling $1.928 million.
So, your complete federal estate tax liability would be $2,273,800.
A Glance at Arizona’s Tax Landscape
In Arizona, you won’t be taxed on Social Security, but be prepared to have your retirement accounts fully taxed and your pensions partially taxed.
With income tax rates between 2.50% and 2.98%, you can determine your net income using an Arizona paycheck calculator.
Your property will be taxed at an average effective rate of 0.51%, which is lower than the national average.
As for sales tax, expect a 5.6% statewide rate, with local rates averaging 2.8%.
Estate Planning Tips
Trusts for Asset Management
Trusts can be an effective tool for managing your assets, regardless of your financial status.
Establishing a trust can ensure your assets are handled according to your wishes.
Retirement Accounts and Estate Planning
Take into account any workplace-sponsored retirement accounts, such as a 401(k), when planning your estate.
To estimate your savings at retirement, consider using a 401(k) calculator.
Professional Guidance
Consider seeking professional help in estate planning or other major financial situations.
The right financial advisor can be found through services like SmartAsset’s free tool, which matches you with up to three vetted financial advisors in your area.
Strategies for Tax Planning
Minimize tax exposure by utilizing various estate planning strategies, such as:
- Grantor Retained Annuity Trust (GRAT)
- Direct indexing
- Dynasty trust
- Charitable Lead Annuity Trusts (CLATs)
Building a Team of Experts
Collaborate with a team of experts, including:
- An estate planning attorney
- An accountant
- A financial advisor
- A tax professional
These professionals can help you develop a comprehensive financial plan, including estate planning, retirement accounts, and tax planning.
Beneficiaries and Estate Planning
Married couples and other individuals with multiple beneficiaries should ensure that their estate planning documents are clear and up-to-date.
This may include designating personal representatives and distributing inherited property.
By following these estate planning tips, you’ll have a solid foundation to properly manage your assets and ensure your beneficiaries are taken care of according to your wishes.
