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 />

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 />

<div class="Section1"><br /> <br /> Upon the distribution of an education savings account on account of the death of the beneficiary, the amount of the education savings account is includable in the estate of the beneficiary, not the contributor. However, where a donor elects to have contributions prorated over a five year period for gift tax purposes (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="901">901</a>) and dies during such period, the gross estate of the donor includes prorated contributions allocated to periods after the donor&rsquo;s death.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="901">901</a> for the gift tax treatment and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="681">681</a> for the income tax treatment of education savings accounts.<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;&sect; 530(d)(3), 529(c)(4).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The following deductions are allowed from the gross estate in arriving at the taxable estate (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="821">821</a>):<br /> <p style="padding-left: 40px;">(1)&nbsp;&nbsp;&nbsp;&nbsp; (a) funeral expenses, (b) administration expenses, (c) claims against the estate, and (d) unpaid mortgages on or other indebtedness against property included at its full value in the gross estate (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="848">848</a>);</p><br /> <p style="padding-left: 40px;">(2)&nbsp;&nbsp;&nbsp;&nbsp; casualty and theft losses incurred during settlement of the estate and not compensated for by insurance or otherwise (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="850">850</a>);</p><br /> <p style="padding-left: 40px;">(3)&nbsp;&nbsp;&nbsp;&nbsp; the charitable bequests deduction (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="851">851</a>);</p><br /> <p style="padding-left: 40px;">(4)&nbsp;&nbsp;&nbsp;&nbsp; the marital deduction (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="853">853</a> through Q <a href="javascript:void(0)" class="accordion-cross-reference" id="858">858</a>);</p><br /> <p style="padding-left: 40px;">(5)&nbsp;&nbsp;&nbsp;&nbsp; the (pre-2005) qualified family-owned business interest deduction (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="859">859</a>); and</p><br /> <p style="padding-left: 40px;">(6)&nbsp;&nbsp;&nbsp;&nbsp; state death taxes (see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="860">860</a>).<a href="#_ftn1" name="_ftnref1">¹</a></p><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;&sect; 2053-2058, as amended by EGTRRA 2001.<br /> <br /> </div></div><br />

<div class="Section1">Yes, assuming that he owns the right to the renewal commissions at the time of his death. The value includable will be the fair market value of the renewals at the time of death. Following the agent’s death, the actuaries of the company will value the renewal account using some appropriate persistency table and an assumed rate of interest. If desired, the renewal commissions can be made to qualify for the marital deduction. For example, the value of the commissions will qualify for the marital deduction if all commissions are payable to the surviving spouse during her lifetime, and to her estate at her death. They should also qualify if she has the right to all renewals payable during her lifetime and a power to appoint who shall receive the commissions payable after her death. But if the surviving spouse is given only a right to those commissions which are payable during her lifetime, and someone else will receive the remaining payments in the event of her death during the renewal period, she will have only a “terminable interest” in the commissions, and they will not qualify unless a QTIP election is made.<a href="#_ftn1" name="_ftnref1">¹</a> The recipient must pay income tax on the renewals as received but is entitled to an income tax deduction for the estate tax attributable including the value of the renewals in the agent’s gross estate.</div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    <em>Est. of Selling v. Comm.</em>, 24 TC 191 (1955); <em>Est. of Baker v. Comm.</em>, TC Memo 1988-483; Let. Rul. 9016084.<br /> <br /> </div>