Much has been made about the fact that there is no Federal estate tax for individuals who die during 2010, but that doesn’t mean that the estate of a 2010 decedent escapes all taxes.

• The estate is liable for any deficit in Federal (and possibly state) income taxes for income earned by the decedent in 2009.
• The estate is liable for Federal (and possibly state) income taxes on its own income (such as, interest, dividedends, capital gains).
• The estate may be liable for state estate taxes.  While Florida does not have a state estate tax, several other states do (for example, New York, New Jersey, Vermont, Connecticut, North Carolina, Illionois, and Kansas).  In “Tax and Asset Protection Benefits Afforded Florida Domiciliaries,” appearing in The Florida Bar (February 2010), David Pratt and Lisa M. Stern write about the fact that the estate of a Florida resident who owned real estate in New York is subject to state estate taxes on the value of the New York real estate (subject to New York’s exemption of $1 million).  Pratt and Stern suggest transferring real estate located in an estate tax state to a separate taxable entity as a means of avoiding state taxes.  While real estate located in New York and owned by the decedent is subject to New York state estate tax, ownership interests in a company that owns real estate located in New York is subject to the laws of the owner’s domiciliary state (provided the company is not a disregarded entity for tax purposes).
• The estate may be liable for state generation skipping transfer (GST) tax.  A handful of states (for example, New York, Vermont, Massachusetts, Illinois, and Nebraska) have their own GST taxes.

What does this mean?  Your plan for minimizing estate taxes doesn’t get to take a vacation for 2010.  Don’t forget to consider property that you own in other states and what transfer taxes apply in those states.  If you’re handling the estate of an individual who died in 2010, the estate may have tax liabilities in states other than the decedent’s domiciliary state.