Nebraska Cattlemen members need to be aware of the Nebraska estate tax burden imposed on Nebraska residents. All NC members, their families and tax advisers are encouraged to aggressively seek a repeal of the tax.

Governor Dave Heineman has informed the Nebraska Cattlemen tax committee that the Governor and his administration will support a repeal of the Nebraska estate tax in 2007.

Nebraska imposes two separate taxes on transfers occurring as a result of the death of a Nebraska resident or a non-resident owning real estate in Nebraska. The two taxes are the Nebraska inheritance tax and the Nebraska estate tax.

The Nebraska inheritance tax was adopted in 1901 and, in most estates, is a nominal tax paid to and benefits the county of the decedent’s residence or the county where the real estate is located. There is no objection to the inheritance tax.

The current Nebraska estate tax is a new tax. It became effective on January 1, 2003. It is not a nominal tax and is paid to the Nebraska Department of Revenue. The tax is not only a severe burden, but also causes problems when drafting the estate plan for many Nebraska residents with a taxable estate exceeding $1 million.

The current federal estate tax exemption for each person is $2 million. Between now and January 1, 2009, a well-drafted estate plan for a husband and wife with a net worth of $4 million can eliminate all federal estate taxes.

When the federal estate tax exemption increases to $3.5 million on January 1, 2009, the same estate plan could eliminate all federal estate taxes for a husband and wife with a net worth of $7 million. The current Nebraska estate tax exemption for the estate of each decedent is a mere $1 million with no scheduled exemption increases. Therefore, an estate plan for a husband and wife cannot eliminate the Nebraska estate tax their beneficiaries will pay if their net worth exceeds $2 million, nor can it eliminate the tax for the estate of the last spouse to die as a single person with a net worth exceeding $1 million.

The tax is so onerous that it is also imposed on life insurance owned by the decedent if the life insurance proceeds are paid to a non-spousal beneficiary.

 Congress is currently considering increasing the federal estate tax exemption above $3.5 million. The wide disparity between the expanding federal estate tax exemption and the small $1 million Nebraska estate tax exemption magnifies the tax burden for Nebraska taxpayers and complicates the tax advice and drafting of estate planning documents provided by estate and business planning attorneys.

Nebraska, Maryland and New Jersey are the only states with both a state inheritance tax and an estate tax. The only states bordering Nebraska with only one death tax are Kansas and Iowa and their tax rates are considerably less than the Nebraska inheritance tax rates.

Some Nebraskans are changing their residence to a state where there is no estate or inheritance tax. By changing their residence, they will no longer pay Nebraska income tax between now and the time they die, and when they die, their beneficiaries will not pay Nebraska estate tax or inheritance tax.

Nebraska has a difficult enough time retaining its population and attracting people to live here. Our income tax, real estate tax, inheritance tax and now, our estate tax, make it even more difficult to compete with non-taxing states or states with lower tax rates.

The authors of this article, Kent Endacott of Lincoln and Jim Fehringer of Columbus, are members of an ad hoc group of Nebraska estate and business planning attorneys requesting the support of Nebraska Cattlemen members and other farm, ranch and business organization members for a repeal of the Nebraska estate tax in the 2007 legislative session.

The NC tax committee will address this matter at the annual convention in November. It will also be addressed between now and the 2007 legislative session in the daily NC newsletter and on the NC Web site.

Your strong support for repeal is requested. Please remove this page from this magazine and share it with your estate and business planning attorney, your current state senators and the legislative candidates.    By Nebraska attorneys Kent Endacott of Lincoln and Jim Fehringer of Columbus.

EXAMPLE

The estate of a decedent dying in 2006 with a net worth of $1.9 million to be distributed to two non-spousal beneficiaries (children, grandchildren or siblings) will result in zero federal estate tax and a nominal 1 percent Nebraska inheritance tax of $18,750.

However, since January 1, 2003, there will be a Nebraska estate tax of $41,250.

The Nebraska estate tax rate on an estate over $1 million starts at 5.6 percent and rapidly escalates to 16.8 percent.