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Julie Garber

Do the Rich Leave Maryland to Avoid Estate Taxes?

By May 30, 2009

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Back in March an article by Nicholas Confessore for The New York Times concluded that there is very little evidence to support the notion that when a state raises its income tax on the wealthy, they flee in droves to states where there is a lower income tax rate or no income tax at all. Last week this topic was back in the news in an article by Jay Hancock for The Baltimore Sun -State income tax isn't why those millionaires are fleeing. It seems that like in New York, no one in Maryland believes that wealthy residents are fleeing the state in droves due to an additional income tax on millionaires. According to Stuart Levine, a Baltimore tax lawyer and adjunct professor at the University of Baltimore School of Law, "Nobody's going to leave the state [of Maryland] because income tax rates go up a point over a million dollars...It's just not going to happen. But they do have to leave to some degree because of the estate tax." So how much could a Marylander worth $3 million really save? About $182,000 according to the article. And as Hancock points out, "OK, you don't feel sorry for the retiree with $3 million. It doesn't matter. She can choose where to live, and driving her from Maryland means she's not buying in local stores, attending the symphony, or paying sales and income tax."

And according to Baltimore estate planning attorney Lowell G. Herman, "nearly a dozen customers with big stashes set up residence elsewhere, largely because of Maryland's failure to match other states in reducing or eliminating its estate tax. But that's just sort of the beginning. There are many others who are thinking about it."

As I wrote back in March, I really think that anyone studying this subject should start with a survey of estate planning attorneys who live and work in states without an income tax and/or an estate tax. Why? Because I estimate that at least half of my clients have changed their domicile from a state that collects an income tax and/or an estate tax - such as Illinois, Maryland, New Jersey, New York, Ohio or Pennsylvania - to a state such as Florida that doesn't collect an income tax or an estate tax. These days it's easy to move and as the Maryland example points out, $182,000 worth of estate tax savings is well worth the effort for the right group of people.

June 2, 2009 at 3:59 pm
(1) Ted Murphy says:

How much of the state’s estate tax can be deducted from the federal estate tax? As I understand it, not all — how does that work?

September 23, 2009 at 2:24 pm
(2) Bruce says:

What really makes me sick as an Ohio taxpayer, is that my ex-boss has rental property in Florida and uses it to “avoid” paying his Ohio income taxes! He has even gone as far as to claim residency there (although his primary residence is in Ohio and his work), and has registered to vote there, along with getting a Florida driver’s license, so he appears legitimate. What can be done to stop this cheating?

March 24, 2012 at 8:47 am
(3) Amy J says:

Bruce, it is totally illegal to do what your boss is claiming he is doing. The way it works with states that do not have an income tax is that if your boss is working in a state that does FOR A COMPANY NOT IN FLORIDA, he has to pay it. So even if he did live in Florida, the state he lives in would make him pay and if he also paid in Florida he would get back some, if he didn’t pay anything in Florida he loses. Good thing his company isn’t in NY. Penalty for getting caught isn’t good. And the 10% finders fee for turning him in is supposedly confidential.

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