Deathbed Gifts — A Savings Opportunity for
Residents of Decoupled States1
The Estate Planning and Administration Group
SCHIFF HARDIN LLP
6600 Sears Tower
Chicago, Illinois 60606
One Westminster Place
Lake Forest, IL 60045
623 Fifth Avenue, 28th Floor
New York, NY 10022
© Copyright 2004 Schiff Hardin LLP All Rights Reserved.
Much has been written about the impact of the movement by many states to “decouple” their death taxes from the federal estate
tax system.2 The bottom line is that while the top federal estate tax rate has dropped since 2001 to 48% for deaths in 2004,3 the
combined state and federal estate tax rates for residents of many states has actually increased from the prior 55% maximum.
Residents of decoupled states who die in 2004 are now subject to combined state and federal rates as high as 60%. Most
decoupled states, however, do not impose a tax on gifts made during life, even if the gift occurs only an instant before death.
This means that residents of decoupled states can achieve significant tax savings by making lifetime gifts, including gifts made
shortly before death (referred to going forward as “deathbed” gifts). This Article focuses on the many tax, property and fiduciary
issues that must be negotiated in order to achieve those tax savings.
I. The Opportunity
Gifts afford the residents of decoupled states a significant tax savings opportunity because, once made, they completely remove
the gifted property from the calculation of the resident’s state estate tax. Decoupled states (in most cases) assess the full pre-
2001 state death tax credit, regardless of whether any credit is actually allowed under the revised federal estate tax law. The
state death tax credit is based on the decedent’s adjusted taxable estate — generally the assets owned at death plus the value
of assets which are the sub