Estate Planning More Complicated as States Tinker With Transfer Taxes

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As the saying goes, only two things are certain in life—death and taxes—and when those combine, things can get tricky. As more states repeal parts of their transfer tax regime, estate planning has become even more complicated. On the state level, there are two types of estate taxes: “pick-up” taxes that are based on the now repealed federal tax credit, and stand-alone taxes. States with pick-up taxes base their estate tax on the federal credit for state death taxes paid. As a result, these states are literally picking up revenue that otherwise would have gone to the IRS if there were no federal tax credit. However, the federal credit has been repealed since 2005, so states with pick-up taxes in effect no longer impose an estate tax on decedents' estates.