Use of Non-Probate Transfers Increases, Causing One Estate Tax-Liability Problems

I recently reported on a Wisconsin Supreme Court decision holding that personal estates, not heirs, are liable for paying state and federal estate taxes.  The decision resulted in a huge estate tax liability for the estate of a Wisconsin man who named his goddaughter as the beneficiary of a large life insurance policy.

A recent article discussing the patchwork of state estate tax laws in light of the Wisconsin case summarizes part of the problem as follows:

The issue is only growing more acute as people transfer assets outside of wills through vehicles such as life insurance, leaving less in the estate to cover tax obligations and complicating the issue of who owes how much in taxes. Non-probate transfers have been on the upswing over the past decade.

Dow Jones, Estate Tax Pitfalls Seen in Wisconsin Case, Fin. Advisor, May 10, 2010.