TAX BREAK

EGTRRA’s Effect on State Death Taxes

by Susan J. Spahn (Continued)

 

 

The change from a state death tax credit to a state death tax deduction also affects the manner in which practitioners complete these filings.  In Nebraska, the state death tax filings are due one year after the date of death.  However, the federal estate tax return remains due nine months after date of death.  Under the former state death tax credit scheme, practitioners were not required to determine the state death tax amounts until they were due (one year after death).   Under the new state death tax deduction scheme, the amount of the state death taxes will need to be determined prior to completion of the federal estate tax return so that the actual amount to be paid can properly be included as a deduction on that return.

 

Tax planning tip:  use of the one million dollar gift tax exemption amount is now tax advantageous from a state death tax perspective.  If a person makes a one million dollar gift and utilizes his or her exemption amount, there is no federal gift tax due and no Nebraska tax due on that gift.  For federal estate tax purposes, the amount of that gift is not included in the federal taxable estate (instead, it is added to the federal taxable estate on line 4 of form 706).  Therefore, that one million dollar gift would escape Nebraska estate tax.  (It will also escape Nebraska inheritance tax provided that the client lives three years after making the gift.)  A one million dollar reduction in the amount subject to Nebraska estate tax could save up to $168,000 in Nebraska estate tax!

 

 

 

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