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Do Colorado residents have to pay estate taxes?

| Mar 27, 2015 | Estate Administration & Probate |

The old saying goes that there are two inevitabilities in life — death and taxes. In many states, death triggers yet another tax for the survivors of the deceased.

But Colorado residents are lucky to live in a state that no longer collects estate taxes. Changes stemming from the Economic Growth and Tax Relief Reconciliation Act of 2001 were applied to existing federal estate taxes in 2004. At the end of the year, the state’s estate tax based on the allowable credit for the federal return was eliminated.

Survivors of Colorado residents who passed away on or after the first day of January in 2005 are not responsible for any estate taxes. However, there are still income taxes that may be due on trusts and estates. Those that are administered in Colorado are classified as resident trusts and estates, and a fiduciary income tax of 4.63 percent is imposed.

Trusts and estates that are administered in states other than Colorado are classified as nonresident, but if either has a source of income from Colorado, a state tax return must be filed. Residents get a further break by not having any gift taxes attached to property transfers that are gifts between individuals.

The main difference between a state inheritance tax and an estate tax is that an inheritance tax is assessed against each beneficiary’s individual share of a decedent’s estate, whereas an estate tax is assessed against the whole estate. But at this time, Coloradans have to pay neither.

The original plan was to re-impose the pick-up tax in 2011 that was phased out by EGTRRA. But in 2010, when the Tax Relief Act failed to include a reinstatement of this tax, Colorado followed suit by not re-imposing taxes at the state level.

An estate planning attorney is a good source to turn to with questions regarding taxes owed by administrators of a decedent’s estate.

Source: Bankrate.com, “State taxes: Colorado,” Kay Bell, accessed March. 27, 2015

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