Tax on a Phantom TaxTax on a Phantom Tax
A recent decision out of New Jersey Estate of Stevenson v. Director, Division of Taxation1 illustrates a novel issue arising under the decoupled estate tax systems adopted by many states: the potential imposition of state death taxes on federal taxes that are never paid! In Stevenson, the residuary estate actually passed to the surviving spouse at the decedent's death in 2005. Nonetheless, in determining
Joseph C. Mahon
A recent decision out of New Jersey — Estate of Stevenson v. Director, Division of Taxation1 — illustrates a novel issue arising under the decoupled estate tax systems adopted by many states: the potential imposition of state death taxes on federal taxes that are never paid!
In Stevenson, the residuary estate actually passed to the surviving spouse at the decedent's death in 2005. Nonetheless, in determining the decoupled New Jersey estate tax due, a court reduced the marital deduction by the amount equal to a hypothetical federal estate tax payable from the residue determined by applying the Internal Revenue Code in effect in 2001.2
Practitioners are now faced with the need to plan both for death taxes that get paid and for...
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