For years, federal and state estate taxes were coordinated so that states effectively shared federal revenues and estates were spared extra tax. That has changed recently, so some estates may face unexpected taxes.
For example, the federal estate tax exemption for deaths in 2008 is $2 million. Many states have lower exemptions: $1 million in New York and $675,000 in New Jersey, for example. Thus, the estate of someone dying in those states this year with a $2 million estate would owe nothing to the IRS but over $100,000 to the state.
Therefore, knowledge of your state’s estate tax should be a part of your estate plan. Draw up a plan with state as well as federal tax in mind. If it seems like your estate will be hit hard, you might consider moving to a state with a less punishing estate tax.
