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States Are Hiking Estate Taxes As the Federal Tax Credit Vanishes
- December 19th, 2002
States are hastily adopting new estate taxes to replace the billions of dollars they are losing as the federal estate tax is phased out, according to an article in USA Today. The new state laws are raising the total tax bill for some large estates, and other estates that are currently exempt from federal taxes will still owe thousands in state taxes.
Under the federal estate tax scheme that is being phased out, many states receive a portion of the federal tax bill equal to their tax, so that heirs don't pay any extra tax to the state. It works like this: If the federal tax on an estate is $1 million and the state tax is $200,000, the estate would owe $200,000 to the state and $800,000 to the IRS. But the 2001 Tax Relief Act reduces the state tax credit by 25 percent a year, eliminating it by 2005. Eleven states and the District of Columbia have so far enacted laws to replace the funds. More are expected to follow next year.
Estate planning experts predict that many older individuals will migrate to estate tax-free havens like Florida, Alabama and Nevada.
The federal estate tax is slated to return in 2011, but eliminating it permanently is a top priority of the Bush administration. Since the overwhelming majority of heirs don''t pay any estate tax at all, a repeal of the estate tax would benefit only the wealthiest sliver of the population.
To read the full USA Today article, click on: www.usatoday.com/usatonline/20021217/4706272s.htm (The article may be only temporarily available.)
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Needham Mitnick & Pollack, PLC
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