Federal Estate

<p>With respect to property transferred after October 13, 1987, the GST tax exemption inclusion ratio for any charitable lead annuity trust (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8104">8104</a>) is to be determined by dividing the amount of exemption allocated to the trust by the value of the property in the trust following the charitable term. For this purpose, the exemption allocated to the trust is increased by interest determined at the interest rate used in determining the amount of the estate or gift tax charitable deduction with respect to such a trust over the charitable term. With respect to a late allocation of the GST exemption (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="880">880</a>), interest accrues only from the date of the late allocation. The amount of GST exemption allocated to the trust is not reduced even though it is determined at a later time that a lesser amount of GST exemption would have produced a zero inclusion ratio.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 2642(e), Treas. Reg. &sect; 26.2642-3.</p></p><br />

<p>No interest in a qualified tuition program is includable in the estate of any individual for purposes of the estate tax, with two exceptions: (1) distributions made to the estate of the beneficiary upon the beneficiary&rsquo;s death; and (2) if such a donor dies before the end of a five-year gift tax proration period (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="902">902</a>), the gross estate of the donor will include the portion of contributions allocable to periods after the death of the donor.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="902">902</a> for the gift tax treatment and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="687">687</a> for the income tax treatment of qualified tuition programs.<br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 529(c)(4).</p></p><br />

<p>Under IRC Section2054, losses incurred during the period of administration from fire, storm, or other casualty, or from theft, are deductible to the extent not compensated by insurance or otherwise. Therefore, post-death events, such as destruction to estate assets from a storm, generate an estate tax deduction that can offset the date-of-death value of the property destroyed or damaged.</p><br />

<p>For decedents dying before 2005, if a GST (other than a direct skip) occurs at the same time as and as a result of the death of an individual, a credit against the GST tax imposed is allowed in an amount equal to the GST tax paid to any state in respect to any property included in the GST, but the amount cannot exceed 5 percent of the GST tax.<a href="#_ftn1" name="_ftnref1">¹</a> The amendments made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) sunset after December31, 2012 so that this provision is no longer applicable. Transfers made to estates of decedents, gifts, or GST transfers are treated as if the amendments were never enacted.<a href="#_ftn2" name="_ftnref2">²</a> However, under 2010 TRA, the GST tax rate for 2010 was zero, 35 percent for 2011 and 2012 and 40 percent for 2013 and beyond. The GST exemption was $5.49 million in 2017, and was raised to $11.18 million in 2018, $11.4 million in 2019, $11.58 million in 2020, $11.7 million for 2021, $12.06 million for 2022, $12.92 million in 2023, and $13.61 million in 2024 under the 2017 Tax Act.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 2604.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC &sect;&sect; 2604(c), 2664, as added by EGTRRA 2001.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Rev. Proc. 2016-55, Pub. Law No. 115-97, Rev. Proc. 2018-18, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34.</p></p><br />

<p>Apparently, they are valued at their redemption value on the applicable valuation date. In Revenue Ruling 5578,<a href="#_ftn1" name="_ftnref1">¹</a> A, in 1948, bought Series E bonds with his own funds and had them registered in the names of A and B in the alternative as co-owners. In 1953, A had the bonds reissued in the name of B alone in order to effect a gift to him of A&rsquo;s co-ownership therein. The IRS held that the value of the gift made by A to B in 1953 was the redemption value of the bonds at the time they were reissued. The Service found that, &ldquo;since Series E United States savings bonds are generally nonnegotiable and nontransferable, they are nonmarketable and, accordingly, have no particular &lsquo;market&rsquo; value. Although ownership therein is transferable by death and by reissue in certain cases&hellip;, their only definitely indicated or ascertainable value is the amount at which they are redeemable by the United States Treasury.&rdquo; Presumably, the same would be true of Series H/HH bonds, since they are likewise nonnegotiable and nontransferable.<br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>.1955-1 CB 471.</p></p><br />

<p>In the case of a taxable distribution, the tax is paid by the transferee. In the case of a taxable termination or a direct skip from a trust, the tax is paid by the trustee. In the case of a direct skip (other than a direct skip from a trust), the tax is paid by the transferor. Unless the governing instrument of transfer otherwise directs, the GST tax is charged to the property constituting the transfer.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 2603.</p></p><br />

<p>The fair market value of a share in an open-end investment company (commonly known as a &ldquo;mutual fund&rdquo;) is the public redemption price of a share. In the absence of an affirmative showing of the public redemption price in effect at the time of death or gift, the last public redemption price quoted by the company for the date of death or gift shall be presumed to be the applicable public redemption price. If the estate tax alternate valuation method under IRC Section2032 is elected, the last public redemption price quoted by the company for the alternate valuation date is the applicable redemption price. If there is no public redemption price quoted by the company for the applicable valuation date (e.g., the valuation date is a Saturday, Sunday, or holiday), the fair market value of the mutual fund share is the last public redemption price quoted by the company for the first day preceding the applicable valuation date for which there is a quotation.<br /> <br /> In any case where a dividend is declared on a share in an open-end investment company before the decedent&rsquo;s death but payable to shareholders of record on a date after his death and the share is quoted &ldquo;ex-dividend&rdquo; on the date of the decedent&rsquo;s death, the amount of the dividend is added to the ex-dividend quotation in determining the fair market value of the share as of the date of the decedent&rsquo;s death.<br /> <br /> As used in this section, the term &ldquo;open-end investment company&rdquo; includes only a company that, on the applicable valuation date, was engaged in offering its shares to the public in the capacity of an open-end investment company.<a href="#_ftn1" name="_ftnref1">¹</a> Participating agreement shares in mutual funds are valued at the liquidation value and not at the public offering price on the date of death (following <em>Cartwright</em>).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>.Treas. Reg. &sect;&sect;20.2031-8(b); 25.2512-6(b); <em>U.S. v. Cartwright</em>, 411 U.S. 546 (1973).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.<em>Est. of Sparling v. Comm.</em>, 60 TC 330 (1973), nonacq. 1978 CB 4.</p></p><br />

<p>A deduction is available for federal estate tax purposes for estate, inheritance, legacy, or succession taxes (i.e., death taxes) paid to any state or the District of Columbia with respect to the estate of the decedent.<a href="#_ftn1" name="_ftnref1">¹</a> The deduction is available for tax years beginning in 2005 and thereafter. A credit for state death taxes (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="861">861</a>) was available before 2005.<br /> <br /> The deduction is available only for state death taxes actually paid and claimed as a deduction before the later of (1) four years after the filing of the federal estate tax return; (2) 60 days after a decision of the Tax Court with respect to a timely filed petition for redetermination of a deficiency; or (3) with respect to a timely filed claim for refund or credit of the federal estate tax, the later of (a) 60 days of the mailing of a notice of disallowance by the IRS, (b) 60 days after the decision of any court of competent jurisdiction on such claim, or (c) two years after the taxpayer files a notice of waiver of disallowance.<br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 2058, as added by EGTRRA 2001.</p></p><br />

<p>A foreign death tax credit is provided for United States citizens and residents. The credit applies to property which is subject to both federal and foreign death taxes.<a href="#_ftn1" name="_ftnref1">¹</a> However, if there is a treaty with the foreign country levying a tax for which a credit is allowable, the executor may elect whether to rely on the IRC credit provisions or the treaty provisions.<br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. IRC &sect; 2014.</p></p><br />

<p>Any transfer of property to a minor under either of the Uniform Acts constitutes a complete gift for federal gift tax purposes to the extent of the full fair market value of the property transferred. Generally, such a gift qualifies for the gift tax annual exclusion (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="905">905</a>).<a href="#_ftn1" name="_ftnref1">¹</a> The allowance of the exclusion is not affected by the amendment of a state&rsquo;s Uniform Act lowering the age of majority and thus requiring that property be distributed to the donee at age 18.<a href="#_ftn2" name="_ftnref2">²</a> These rulings base the allowance of the exclusion on the assumption that gifts under the Uniform Acts come within the purview of IRC Section2503(c). Gifts to minors under IRC Section2503(c) must pass to the donee on his attaining age 21. If a state statute varies from the Uniform Act by providing that under certain conditions custodianship may be extended past the donee&rsquo;s age 21, gifts made under those conditions would not qualify for the exclusion. For tables of state laws concerning the Uniform Acts, see Appendix D of <em>Tax Facts on Investments</em>.<br /> <br /> <hr align="left" size="1" width="33%"><a href="#_ftnref1" name="_ftn1">1</a><p>. Rev. Rul. 56-86, 1956-1 CB 449; Rev. Rul. 59-357, 1959 CB 212.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Rev. Rul. 7387, 1973 CB 321.</p></p><br />