• The Arizona estate tax laws were linked to U.S. estate tax laws.Arizona, America image by Serenitie from Fotolia.com
  
  Estate and gift taxes are taxes imposed on the recipients of gifts or the beneficiaries of wills based upon the amount of windfall they receive. While most estate taxes apply only to estates worth more than $3.5 million, inheritance taxes are a large consideration for people with sizable assets who are planning estates and trusts.
  
  

Prior to Jan. 1, 2005

• Arizona’s estate tax was structured entirely around federal estate tax laws, which allowed states to claim a portion of estate tax as a state tax credit. Prior to Jan. 1, 2005, Arizona tax code simply took the maximum allowable amount in conjunction with federal estate taxes and was levied against the net value of the estate before it was divided or distributed among heirs and creditors.
  
  

After Jan. 1, 2005

• Beginning in the 2005 tax year, the Internal Revenue Service eliminated the state tax credit through changes incrementally implemented by the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16). Because Arizona’s estate tax code was entirely tied to federal state death tax credits, the new federal tax code eliminated Arizona’s estate tax system. As of tax year 2010, the state had yet to implement a replacement for the superseded tax code.
  
  

Federal Tax Laws

• While the state of Arizona has no estate tax, its residents are still bound by federal estate tax laws. For tax year 2010, the estate tax expired, though it’s predicted that Congress will institute a new version starting the next year that is expected to impose an estate tax on holdings much smaller than the $3.5 million threshold at which it was set in the previous decade.