It’s never time to stop managing taxes

TAX VIEW: Jeremiah Doyle IV, senior vice president at BNY Mellon Wealth Management, says retirees should be focusing more on income taxes than estate taxes. / PBN PHOTO/ MICHAEL SALERNO
TAX VIEW: Jeremiah Doyle IV, senior vice president at BNY Mellon Wealth Management, says retirees should be focusing more on income taxes than estate taxes. / PBN PHOTO/ MICHAEL SALERNO

The upcoming elections have once again brought the issue of estate taxes – a political favorite – to the forefront of tax-policy debate. But as exemptions at both the state and federal levels have increased recently, income taxes might be what retirees should be thinking about.

“Even though people have traditionally focused on federal and state estate taxes, the whole game has changed as a result of the increase in exemptions,” said Jeremiah W. Doyle IV, senior vice president and wealth strategist at BNY Mellon Wealth Management.

Doyle, who’s started at the wealth-management firm in 1981, presented a series of pre-planning retirement techniques on Oct. 6 at the University Club in Providence.

The presentation, delivered to a room filled with wealth managers and business owners as part of the company’s ongoing “breakfast seminar series,” covered a range of topics, specifically focused on how to maximize proceeds and minimize tax liabilities from the sale of a business. Afterward, Doyle talked with Providence Business News about how retirees and retirement planners ought to be thinking about post-employment taxes in New England.

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“If you live on the East Coast you’re going to be hit with both income tax and estate tax,” he said. “If you look at states like Texas, Washington and Florida, where there’s no state income tax and no state estate tax, you’re going to save a lot of money.”

Estate tax – also known as the “death tax” – is levied on the net value of an individual’s estate after death, before it’s distributed to heirs. Income tax is an assessment on, well, income, including such capital gains as selling a home.

Estate taxes at both the federal and state levels have long troubled New Englanders, and even pushed some Rhode Islanders to move to other states where the tax climate is more favorable to retirees. But as estate tax exemption levels have steadily increased – especially recently – the concern has shifted in many ways to income taxes. For those considering their options in retirement, it really becomes a question of math.

How much does it cost to sell a home in Rhode Island and move to another state with a more favorable tax code, versus the cost of staying put and paying an estate tax after death?

Doyle – who was named the 2009 Estate Planner of the Year by Boston Estate Planning Council – said he recently went through this process with his father, who was trying to decide whether to sell his home in Massachusetts. After crunching the numbers, it quickly became clear which approach made the most sense financially.

“The Massachusetts estate tax would be one-third of the income tax that he would have had to pay,” Doyle explained.

Not selling a home before death has another cost benefit. Heirs do not have to pay income taxes on gains realized through the increased value of the home, as the basis value simply becomes the fair market value. Should an individual decide to sell before dying, taxes would be assessed on the difference in value.

“Leave it to the kids and eliminate the tax,” Doyle said.

In Rhode Island and nationwide, the debate surrounding estate taxes is ongoing and hyper-political.

A perennial issue raised during the R.I. legislative session, House Speaker Nicholas A. Mattiello, a Cranston Democrat, recently announced at a campaign event he plans to raise the state’s estate tax exemption from $1.5 million to $2 million.

“It’s imperative to keeping successful business owners in the state,” said Patti Doyle, spokeswoman for Mattiello’s campaign. “It’s almost getting too expensive to die in this state.”

What that would do to the state’s balance sheet is difficult to predict, as it depends largely on the net worth of qualifying Rhode Island taxpayers who die in any given year. In fiscal 2016, for instance, the state’s estate tax yielded $70 million, which is 179 percent more than what was estimated.

At the same time, it’s equally difficult to discern how much comes from capital gains, as the state doesn’t have a breakdown of those numbers. In tax year 2014, the Internal Revenue Service reported Rhode Island taxpayers realized capital gains totaling $2.1 billion.

There’s no doubt in Jeremiah Doyle’s mind, however, that people do leave the Northeast to retire in other states to escape taxes. Rhode Island has positioned itself more favorably than such states as New Jersey, where the estate tax exemption is $675,000. But he thinks the migration, especially since exemptions have grown, are beginning to have less to do with the estate tax.

“Most people are going to be below the estate tax threshold,” Doyle said. “As the states continue to ratchet [up] the exemption, I think you’ll find weather will be more of a reason to go than the estate tax.” •

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