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Estate tax can be a challenge for some clients

Tax planning is one of the more tricky aspects of aspects of estate planning. Not only is there the need to navigate various tax systems, there is also the ever-changing law in this area.

As a recent Wall Street Journal article notes, states have different and shifting approaches to estate taxation. In recent weeks, Ohio repealed its estate tax and within the last couple months Connecticut reduced its estate tax exemption. At present, around 29 states impose no taxes on a deceased person's estate. Others impose estate or inheritance taxes. In addition, the federal credit against state estate tax that was shelved a few years back will come back in 2013 unless Congress takes action. All of these factors make it challenging for estate planners to determine a sensible course of action.

Changes like those that have recently occurred in Connecticut and Ohio often spur court action in reaction to the new law. When Connecticut decreased its estate tax exemption this May, making it retroactive back to the first of the year, the family of a Connecticut developer who passed away in April took to the courts to sue on the issue of whether the state could collect more tax than it had already taken. That particular case was, according to sources, found to be without merit.

Individuals who have property in multiple states are particularly challenging to plan for, given all the variables involved. According to experts, such individuals need to account for the rules of each state where they have property. Often, such individuals are advised to work with local attorneys and tax planners for that purpose.

Source: Wall Street Journal, "State Estate Tax Changes Make Plans Trickier," Arden Dale, 8 July 2011.

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