(17) That changed in 1885 when New York enacted an inheritance tax on collateral heirs, (18) which led other states to enact similar death transfer taxes modeled on New York's tax.
Today, state inheritance taxes differ between lineal heirs (77e.g., spouses, parents, children, and grandchildren), collateral heirs (78e.g., siblings, nieces, nephews, aunts, and uncles), and nonrelated heirs (e.g., neighbors and friends).
Inheritance taxes today tax lineal heirs at a more preferential rate than collateral heirs, and collateral heirs at a more preferential rate than nonrelative heirs.
(173) Eliminating discriminatory rate structures in state death transfer taxes will at least eliminate disfavored treatment given to collateral heirs and nonrelated heirs, although the current landscape favors total repeal of all state death transfer taxes.
TRA '97 expands the predeceased parent exception to transfers to
collateral heirs (e.g., grandnephews or grandnieces) if the transferor has no living lineal descendants at the time of transfer.
