State Estate Taxes after EGTRRA : A Long Day's Journey into Night

From 1924 to 2001, federal estate tax laws included a credit for state death taxes paid by a decedent's estate. The 1954 version of the Internal Revenue Code codified this state death tax credit in section 2011, providing a dollar-for-dollar reduction in federal estate tax for state death taxes paid up to specified limits. As of 2001, all fifty states collected a state estate tax calculated with reference to the maximum state death tax credit. Such taxes, known as pick-up taxes, enabled state governments to share in federal estate tax revenue without imposing any additional tax burden on their residents' estates. lt;brgt;lt;brgt;In 2001 Congress passed, and President Bush signed into law, The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This legislation provided in relevant part for the elimination of the state death tax credit over a period of 4 years.lt;brgt;lt;brgt;As the state death tax credit was eliminated, so too was the state estate tax in every state with a pick-up tax. In response, state legislatures across the country acted to establish separate state estate taxes that operate independently of the federal estate tax system. The result is a seemingly non-stop progression of new state estate tax laws, often enacted with concern only for preserving state revenue and without adequate consideration for the complexities that result. lt;brgt;lt;brgt;This Article is organized in three sections. The first is an analysis of EGTRRA as a piece of estate tax legislation, focusing on the repeal of the state death tax credit as a stealth revenue measure hidden within a tax cut. Second is a survey of the multitude of state legislative responses, seeking to both explain and to categorize these new state estate taxes emerging in response to EGTRRA. Last is a study of the impact of these different state responses to EGTRRA, both from the vantage point of state revenue considerations and from the perspective of estate planning and administration