9127 / In the blended family context, what issues should be considered in planning for who will be responsible for payment of any transfer tax liability?

In most cases, the decedent can specify in his or her will how estate taxes should be apportioned among the beneficiaries. In the absence of specific instructions from the decedent as to how the estate tax will be paid, both state and federal laws will need to be examined. For example, in New York and Florida, tax is generally apportioned among the estate beneficiaries in proportion to the value of the estate property that each beneficiary has received.¹ Certain types of property (including marital deduction property) are specifically addressed at the federal level, and taxes relating to that property will be allocated to the person who received the property.²

In some cases, it can be beneficial for an individual to establish an irrevocable life insurance trust (see Q 9126) to provide liquidity to the estate in order to pay any anticipated estate taxes, rather than dividing liability for estate taxes between the heirs.