Uncertainties Surrounding State and Federal Estate Taxes

Last week Ohio repealed its estate tax, beginning on January 1, 2013. In May of this year, Connecticut lowered its estate tax exemption to $2 million from $3.5. While Ohio taxpayers will likely owe less tax as a result of the state’s repeal of the estate tax, many Connecticut taxpayers are now fighting over the broader reach of the lowered estate tax exemption.

These are just a few of the recent changes and uncertainties surrounding estate tax provisions at the state level, and these changes have complicated the estate planning process for estate planners and taxpayers alike. Further complicating matters is the potential for the revival of the federal credit for state death taxes. If the federal credit returns, almost all states will collect pickup tax equivalents to the federal credit.

To help cope with the uncertain future of both federal and state estate taxes, taxpayers should create estate plans that are flexible and take into account tax rules for the taxpayer’s home state. Additionally, taxpayers need to consider tax issues for any out-of-state property they own as tax rules are very state-specific.

See Arden Dale, State Estate Tax Changes Make Plans Trickier, Financial Adviser, Jul 8, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.