Sep 1, 2011 12:00 PM

Attorneys must now pay greater attention to this issue and its interaction with federal law

By Richard S. Franklin & Molly B. F. Walls

Once upon a time, estate planners focused almost exclusively on the federal tax implications of their planning for clients. State¹ death taxes, which were simple by comparison, didn't merit similar concern. In the past decade, however, tax law changed so that estate attorneys could no longer give short shrift to the state death tax implications of their planning. The recently enacted Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 TRA), with its lower federal estate tax rate, increased federal estate and gift tax applicable exclusion amount and portability feature, creates further complexities with regard to state death tax planning — but it also provides planners with opportunities.

Prior to 2001, almost every state imposed a state death tax that equaled the federal state death tax credit available under Section 2011. Then, in 2001, with the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), Congress phased out the federal state death tax credit, and, by 2005, replaced it with a deduction for state death taxes paid.² The 2010 TRA maintains this deduction for 2011 and 2012. The impact of replacing the federal credit with a deduction varies among the states, because states have different death tax laws. At present, 25 states continue to tie, or “couple,” their state death tax amount to the current federal state death tax credit. Since there's no federal state death tax credit for 2011 and 2012, there will be no state death tax for those 25 states in 2011 and 2012. Three states have eliminated state death taxes altogether (Arizona, Kansas and Virginia). However, state death taxes remain a significant consideration in the other 22 states and Washington, D.C. A number of states “decoupled” their state death tax from the current federal state death tax credit amount and have tied their state death tax to a different threshold amount. Other states have a separate, “stand-alone” death tax. Planning for individuals who reside or own property in the states that continue to have a death tax requires extra thought by attorneys. “Death Tax States,” p. 29 shows the states that continue to have a state death tax and the tax filing thresholds.³

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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