The State of Death Taxes

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When the 2001 tax law passed, individualstates that linked their estatetaxes to the federal estate tax creditstood to lose revenue when the federalgovernment started to phase out thesecredits. To stem the losses, some states,including New York, New Jersey,Maryland, and Pennsylvania, "decoupled"from the federal system. In statesthat have decoupled, death taxes canget nasty. New York, for example, has atop estate tax rate of 60%, compared tothe current maximum federal tax rateof 48%. Although the federal governmentincludes deathbed gifts in thedeceased's estate, most state governmentsdo not. That means if you live ina decoupled state, a deathbed gift ofmoney to your heirs may save yourheirs significant dollars in death taxes.