In addition to the federal estate tax, QuickView calculates two different kinds of state death taxes, "estate taxes" and "inheritance taxes."
"Estate taxes" include both the kind of taxes that were known as "pickup" taxes before the federal estate tax credit for state death taxes tax was phased out by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) as well as certain other state death taxes that have been enacted since 2001 and are imposed on the taxable estate as defined for federal estate tax purposes. Both of these kinds of taxes may be referred to as "decoupled" taxes within the program.
An "inheritance tax" is any other estate, inheritance, or succession tax that is imposed by a state and is not based on the state death tax credit or the federal taxable estate.
State estate taxes are calculated using the parameters from the State Death Tax Manager in the following way:
Taxable Estate: The taxable estate is the same as the federal taxable estate, with only three exceptions:
- There might or might not be a deduction for the state death tax itself, notwithstanding the present effect of I.R.C. section 2057, depending on the laws of the particular state.
- For married couples domiciled in a state that allows a qualified terminable interest property ("QTIP") election that is independent of the federal QTIP election, the state taxable estate is reduced by the amount (if any) of the "nonmarital trust" that is needed to reduce the state estate tax to zero (or the lowest possible amount). At the death of the second spouse, that same amount (together with any increases due to assumed growth) is added to the state taxable estate of the second spouse. In other words, the program assumes that an independent QTIP election is made for a part of the nonmarital trust at the first death, and that the same part of the nonmarital trust is subject to state death tax at the second death.
- If the state imposes a gift tax and includes adjusted taxable gifts in its own estate tax base, then the taxable estate is increased by the adjusted taxable gifts.
Tentative Tax: A tentative tax is then calculated, using the tax rates for that state (which are presumed to be the same rates as applied for purposes of the federal credit for state death taxes under I.R.C. section 2011(c), unless the state has modified or over-ridden those rates.
FET Limitation: If the state estate tax is limited by what the federal estate tax would have been on that same taxable estate (which is the case for most "decoupled" states, because the state death tax credit was limited in that way by I.R.C. section 2011(b)), then the program calculates what the federal estate tax would have been for the taxable estate, using a federal unified credit credit amount equal to the tentative tax on the exemption amount for that state, and with a reduction for any gift tax that might have been paid if the adjusted taxable gifts exceed that exemption amount.
Credits Against Tax: If the state estate tax is not limited by the federal estate tax, then the tentative tax is reduced by a credit equal to the tentative tax on the state exemption amount. If the state imposes a gift tax and includes lifetime gifts in the estate tax calculation, there is also a credit to the extent that the lifetime gifts exceeded the exemption or threshold.