With the increase of the federal estate tax exemption and the phase out of the state death credit (which most states took as their estate tax) effected by provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("2001 Tax Act"), the death tax systems of several states became "decoupled" from the federal estate tax system. That has caused problems for many married persons residing in or owning property in these decoupled states. Under current federal legislation, these problems are scheduled to end at the beginning of next year because all of the estate tax changes made by 2001 Tax Act and the Tax Relief, Unempolyment Insurance Reauthorization and Job Creation Act of 2010 (the "2010 Tax Act") then terminate─including having the federal estate tax exemption drop back to $1 million and the state death tax credit restored. Yet, the problems are present for those who die before this year's end. Also, some disparity between the estate tax exemptions permitted by federal and state law seems likely to continue, especially in light of President Obama's proposal for a $3.5 million estate tax exemption.
Although prior articles in this publication have pointed out that Rev. Proc. 2001-38 appears to provide married people in such states with a solution to these problems, "portability" of the unused exemption of the spouse dying first (enacted as part of the 2010 Tax Act) may provide another one.
Mitchell M. Gans and Jonathan G. Blattmachr,
Exemption Portability May Be a Remedy for Decoupling Problem, 39 Est. Plan. 3
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