New Hampshire Estate Planning: No State Income Tax Advantages

New Hampshire Estate Planning: Maximizing No State Income Tax Advantages

New Hampshire’s lack of state income tax creates unique estate planning opportunities for residents, but careful planning is still essential to fully benefit from these advantages.

New Hampshire Tax Advantages

• No state income tax: New Hampshire does not tax earned income or most forms of retirement income, such as Social Security, pensions, or IRA distributions. This can significantly increase the after-tax value of your retirement savings compared to states with higher income taxes.

• No state estate tax: New Hampshire repealed its estate tax, so estates are not subject to state-level estate taxes upon death. This simplifies planning and can preserve more wealth for your heirs.

• No inheritance tax: Beneficiaries do not pay state inheritance tax on assets they receive, making New Hampshire especially attractive for those wishing to pass on wealth to family or other beneficiaries.

Planning Opportunities for NH Residents

• Retirement account strategies: Since New Hampshire does not tax retirement income, residents can maximize withdrawals from IRAs, 401(k)s, and other retirement accounts without worrying about state tax erosion. However, federal taxes still apply, and if you move to another state, your tax situation may change.

• Trust situs planning: Establishing trusts in New Hampshire can provide tax and privacy benefits. The state’s favorable trust laws allow for directed trusts, perpetual (dynasty) trusts, and asset protection trusts, which can be especially useful for long-term wealth management and legacy planning.

• Interstate coordination: If you own property or have beneficiaries in other states, it’s important to coordinate your estate plan to avoid unintended tax consequences elsewhere. Some states may impose their own estate or inheritance taxes, even if New Hampshire does not.

New Hampshire Trust Advantages

• Directed trusts: New Hampshire law allows for directed trusts, where investment and administrative responsibilities can be separated among different advisors or entities. This provides flexibility and can help ensure your wishes are carried out as intended.

• Trust protectors: You can appoint a trust protector to oversee and, if necessary, modify the trust in response to changes in law or family circumstances. This adds a layer of long-term management and adaptability.

• Privacy advantages: New Hampshire offers strong privacy protections for trusts, limiting public disclosure of trust terms and beneficiaries. This can be important for families who value confidentiality.

Caveats and Considerations

• While New Hampshire offers significant tax advantages, federal estate and income taxes still apply. Large estates may still be subject to federal estate tax, and all retirement account withdrawals are subject to federal income tax.

• If you move out of New Hampshire or own property in other states, those states’ tax laws may affect your estate plan. Always review your plan if your residency or asset location changes.

• Trusts and other estate planning tools can be powerful, but they require careful drafting and ongoing management to ensure they meet your goals and comply with current law.

New Hampshire’s tax advantages create powerful estate planning opportunities for residents, but a thoughtful, individualized approach is key to maximizing these benefits and avoiding pitfalls.

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Disclaimer: This blog post is for general informational purposes only and does not constitute legal advice. Estate planning outcomes can vary widely depending on your personal circumstances and the evidence available. Always review your situation carefully before making decisions.