In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) phased out the federal state death tax credit
, which was the basis of most state estate tax schemes.
States using the Federal State Death Tax Credit
, for example:
In other words, the revenue-sharing arrangement ended after the federal state death tax credit
was phased out after 2004.
In many of these states, the combined state and federal estate taxes could exceed 60% because state estate taxes will exceed the federal state death tax credit
(For a discussion, see Godfrey, "The Phaseout of the Federal State Death Tax Credit
" Part I, TTA, February 2004, p.
(25) Although there do not appear to be any regulations, cases, or IRS rulings on point, it is the authors' opinion that the payment of state estate taxes to states, such as Florida, which have a "pick up" tax would not constitute the payment of a "debt." However, the payment of estate taxes in excess of the federal state death tax credit
would, in our opinion, constitute a "debt" payment.
If the decedent's state death tax is based on the Form 706 federal state death tax credit
, the alternative valuation election will reduce the tax.
As a part of EGTRRA, Congress replaced the federal state death tax credit
with a federal estate tax deduction.
Chart of Current State Law State Type of Tax California Pick-up Only Connecticut Pick-up Plus Inheritance, but inheritance tax will be phased out by 2006 Georgia Pick-up only Illinois Pick-up only Indiana Pick-up Plus Inheritance Maryland Pick-up Plus Inheritance Massachusetts Pick-up Only Michigan Pick-up Only New Jersey Pick-up Plus Inheritance New York Pick-up Only North Pick-up Only Carolina Ohio Pick-up Plus Estate Pennsylvania Pick-up Plus Inheritance Wisconsin Pick-up Only State Effect of EGTRRA on Pick-Up Tax and Size of Gross Estate California Tax tied to Federal state death tax credit
. CA REV & TAX [subsection] 13302; 13411.
(2) For a detailed discussion, see Godfrey; "The Phaseout of the Federal State Death Tax Credit
," Part I, 35 The Tax Adviser 96 (February 2004) and Part II, 35 The Tax Adviser 148 (March 2004).
The Federal state death tax credit
(SDTC) was reduced from 50% to 25%.
Death tax revenues of many states are declining as a result of the phaseout of the Federal state death tax credit
(SDTC) and the credit for state generation-skipping transfer (GST) taxes.