Even as the federal estate tax fadesaway, heirs face increases in statetaxes. Under the old tax laws, heirsfaced no increase in their total tax billif they owed estate taxes to their state,because they could deduct them fromthe federal tax they owed. Thatexemption is being pared by 25% ayear and will disappear by 2005. Estate taxes owed to individualstates will be added to any amountpaid to the federal government. Another sticky issue is the estate taxexemption. Many states have lowerthresholds than the current $1-millionfederal exclusion, and the gap islikely to widen as the federal exemptionrises to $3.5 million in 2009.Residents of states that have no estatetax, like Nevada, Florida, and Alabama,will not be affected.