Many people thought their estate-tax worries were over once President Bush signed estate-tax relief in 2001. The law gradually increases the amount of your estate that's exempt from federal estate taxes, then eliminates the tax in 2010, before the tax comes roaring back to life in 2011 (unless Congress extends the relief law).
But that law didn't ease a related pain: your state's estate tax. You still must do some smart tax planning to minimize that tax. In some cases, you may find it even pays to move to a different state!
New incentive for state increases
Before 2002, when a person died, a credit for state taxes paid reduced his or her federal estate-tax obligation. Many states adopted a "pick-up" tax, so they would pick up the credit amount as their own estate tax.
Pre-2002 example: Say a person who died in 2001 owed $2 million in federal estate tax. The top rate for the credit was 16 percent, so the esta...(register to read more)