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Background

There is actually no standard deduction for estates. To exempt small estates from tax, the federal government
allows a tax credit equal to the amount of tax. The tax credit is called the Unified Credit because it is applied
both to estate and to taxable gift make during the decedent’s lifetime. However, most individuals don’t think in
terms of tax credits. They think of the Unified Credit being a deduction equivalent.

The size of the taxable estate exempted from tax by the Unified Credit has increased over the past 10 years.

Many states historically maintained symmetry between their estate tax laws and the federal law. If a taxable estate was less than the amount
offset by the Unified Credit, no state death taxes were due.

Many states had so-called pickup taxes. If an estate incurred federal taxes, a credit was allowed on the federal estate tax return for state death
taxes. States with pickup taxes levied taxes equal to the amount of the credit on the federal return. There was no net increase in total estate
taxes because of pickup taxes. The total estate tax didn’t change, just the recipients. (The states got a little piece of the pie.)