Estate Tax

<div class="Section1"><br /> <br /> 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 /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 529(c)(4).<br /> <br /> </div></div><br />

Under IRC Section 2054, 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.

<div class="Section1"><br /> <br /> 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 /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2058, as added by EGTRRA 2001.<br /> <br /> </div></div><br />

<div class="Section1">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.</div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    IRC § 2014.<br /> <br /> </div>

<div class="Section1">A credit is allowed for federal gift tax paid on property transferred by the decedent during life but included in the gross estate, <em>but only as to gifts made on or before December&nbsp;31, 1976</em>.<a href="#_ftn1" name="_ftnref1">¹</a> The credit cannot exceed an amount which bears the same ratio to the estate tax imposed (after deducting the unified credit and the credit for state death taxes) as the value of the gift(s) (at time of gift or at time of death, whichever is lower) bears to the value of the gross estate minus charitable and marital deductions allowed.<a href="#_ftn2" name="_ftnref2">²</a> In the case of (pre-1977) &ldquo;split gifts&rdquo; made by the decedent and his consenting spouse (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="905">905</a>), the gift taxes paid with respect to both halves of the gift are eligible for the credit.<a href="#_ftn3" name="_ftnref3">³</a><div class="Section1"><br /> <br /> The gift tax credit cannot be taken with respect to gifts made after December&nbsp;31, 1976. However, in the computation of the estate tax, an adjustment is made for federal gift tax paid on post-1976 gifts not included in the donor-decedent&rsquo;s gross estate (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="821">821</a>).<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2012(e).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2012(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2012(c).<br /> <br /> </div></div><br />

<div class="Section1">Whether or not a return is required depends on the size of the gross estate (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="824">824</a>), and possibly also on what kinds of gifts were made by the decedent during life. Generally, a return must be filed if the gross estate of a decedent who is a U.S. citizen or resident exceeds the estate tax unified credit equivalent ($5,000,000 for 2012-2017 and $10,000,000 for 2018-2025, as adjusted annually for inflation, the amount is $11.18 million in 2018, $11.4 million in 2019, $11.58 million in 2020, $11.7 million in 2021, $12.06 million in 2022, $12.92 million in 2023, $13.61 million in 2024 and $13.99 million in 2025).<a href="#_ftn1" name="_ftnref1">¹</a> However, the exemption amount is reduced by the amount of <em>taxable</em> gifts (the value of the property given after subtracting allowable exclusions and deductions &ndash; see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="892">892</a>) made by the decedent after December&nbsp;31, 1976, except gifts includable in the gross estate. Also, if the decedent made any gifts after September&nbsp;8, 1976 and before January&nbsp;1, 1977, the above amounts are further reduced by any amount allowed as a specific gift tax exemption (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="914">914</a>) with respect to such gifts.<a href="#_ftn2" name="_ftnref2">²</a><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; Rev. Proc. 2013-35, 2013-47 IRB 537, 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, Rev. Proc. 2023-34, Rev. Proc. 2024-40.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 6018(a).<br /> <br /> </div></div><br />

IRC Section 2039 deals with annuities or other payments receivable by any beneficiary under any form of contract or agreement by reason of surviving the decedent. Subsections (a) and (b) of that section state the circumstances under which such an annuity or payment is includable in the decedent’s gross estate. Thus, IRC Section 2039 applies to death and survivor benefits under annuity contracts and under optional settlements of living proceeds from life insurance policies and endowment contracts.<br /> <br /> Exclusions under various provisions of IRC Section 2039 may apply to employee annuities which are part of qualified pension and profit sharing plans; to employee annuities payable under nonqualified deferred compensation plans, including death benefit only plans; to certain tax sheltered annuity plans; and to individual retirement savings plans.

IRC Section 2042 deals specifically with the includability of life insurance proceeds in the gross estate of the <em>insured</em>. The proceeds are includable in the insured’s gross estate under IRC Section 2042 if they are as follows:<br /> <p style="padding-left: 40px;">(1)     Receivable by or for the benefit of insured’s estate; or</p><br /> <p style="padding-left: 40px;">(2)     Receivable by a beneficiary other than the insured’s estate <em>and</em> the insured possessed at his death any of the incidents of ownership in the policy (whether exercisable by the insured alone or only in conjunction with another person).</p><br /> <br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Generally, the dispute arises as to whether the decedent held any “incidents of ownership” in the policy. A decedent may have an incident of ownership if he has the power to change the beneficial ownership in the policy regarding its proceeds. To help remove the insurance proceeds from the insured’s estate, it may be desirable to acquire the policy in the name of an irrevocable life insurance trust or “ILIT”.<br /> <br /> <hr /><br /> <br /> &nbsp;

<p>A marital deduction is allowed for transfers of &ldquo;qualified terminable interest&rdquo; property, commonly referred to as &ldquo;QTIP,&rdquo; if the decedent&rsquo;s executor (or donor) so elects and the spouse receives a &ldquo;qualifying income interest&rdquo; in the property for life. (See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="847">847</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="911">911</a>.) If the property subject to the qualifying income interest is not disposed of prior to the death of the surviving spouse, the fair market value of the property determined as of the date of the spouse&rsquo;s death (or alternate valuation date, if so elected) is included in the spouse&rsquo;s gross estate pursuant to IRC Section&nbsp;2044.</p><br />

<div class="Section1" style="text-align: center;"><strong>IRC Section&nbsp;2701 Recapture of Qualified Payments</strong><div class="Section1"><br /> <br /> Additional estate tax may be due with respect to certain transfers of interests in corporations or partnerships to reflect cumulative but unpaid distributions on retained interests (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="934">934</a>).<a href="#_ftn1" name="_ftnref1">¹</a><br /> <p style="text-align: center;"><strong>IRC Section&nbsp;2704 Deemed Transfer of Lapsing Right</strong></p><br /> There may be a deemed transfer at death upon the lapse of certain voting or liquidation rights in a corporation or partnership (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="943">943</a>).<a href="#_ftn2" name="_ftnref2">²</a><br /> <p style="text-align: center;"><strong>IRC Section&nbsp;2801 Property Received from Expatriate</strong></p><br /> A United States citizen or resident who receives a covered bequest from certain expatriates may owe estate tax on the transfer.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2701.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp; IRC &sect; 2704.<br /> <br /> </div></div><br />