State must defer to federal estate-tax ruling

Sunday, October 28, 2001

The Missouri Supreme Court last week issued an important ruling on the subject of estate taxes. The court ruled that taxpayers exempt from federal estate taxes should also be exempt from similar state taxes.

Tuesday's decision overturned a ruling of an administrative hearing commission. It will force the Missouri Department of Revenue to change the way it calculates estate taxes.

"It will result in a loss of revenue to the state," said director of revenue Carol Fischer. "However, we don't think it will be substantial. The circumstance where you have no federal tax is somewhat unusual."

The decision came in the case of Mary Riethmann, a beneficiary of her father, who died in 1995 leaving her $22.5 million and the beneficiary of a trust valued at $1 million. Her father's estate paid federal and state taxes, including $8 million to state government.

The daughter then died less than two years later, leaving an estate composed largely of her inheritance.

Because of the close timing of the deaths, the daughter's trust received a federal tax credit for all the property she had inherited, and the Internal Revenue Service concluded that the trust owed no federal estate taxes.

The state Department of Revenue, however, sought nearly $3.4 million in taxes and interest and $157,000 in penalties. This is what the court ruled can't be extracted from the taxpayer's estate.

It sounds to us as though justice was done in this case. Ample taxes had already been paid, and another taxable event so soon after these large sums were paid doesn't seem right.

Good for the Supreme Court.

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