Federal Estate

<div class="Section1">With respect to property transferred after October&nbsp;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><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; 2642(e), Treas. Reg. &sect; 26.2642-3.<br /> <br /> </div></div><br />

<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">Apparently, they are valued at their redemption value on the applicable valuation date. In Revenue Ruling 55-278,<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’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, “since Series E United States savings bonds are generally nonnegotiable and nontransferable, they are nonmarketable and, accordingly, have no particular ‘market’ value. Although ownership therein is transferable by death and by reissue in certain cases…, their only definitely indicated or ascertainable value is the amount at which they are redeemable by the United States Treasury.” Presumably, the same would be true of Series H/HH bonds, since they are likewise nonnegotiable and nontransferable.</div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    1955-1 CB 471.<br /> <br /> </div>

<div class="Section1">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></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    IRC § 2603.<br /> <br /> </div>

<div class="Section1">The fair market value of a share in an open-end investment company (commonly known as a “mutual fund”) 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 Section 2032 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.</div><br /> <div class="Section1"><br /> <br /> In any case where a dividend is declared on a share in an open-end investment company before the decedent’s death but payable to shareholders of record on a date after his death and the share is quoted “ex-dividend” on the date of the decedent’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’s death.<br /> <br /> As used in this section, the term “open-end investment company” 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 /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    Treas. Reg. §§ 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. 1978-2 CB 4.<br /> <br /> </div>

<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"><br /> <br /> IRC Section 2037 requires inclusion in the gross estate of any interest in property transferred by the decedent if both of the following conditions are met:<br /> <p style="padding-left: 40px;">(1)     Possession or enjoyment of the property can, through ownership of the transferred interest, be obtained only by surviving the decedent; and</p><br /> <p style="padding-left: 40px;">(2)     The decedent has retained a reversionary interest in the property which, immediately before his death, exceeded 5 percent of the value of the property.</p><br /> A simple example would be a transfer to an irrevocable living trust under the following terms: income to grantor’s wife for her life; property to revert to grantor if living at wife’s death and if not, property to their daughter.<br /> <br /> Assuming that the grantor predeceases his wife and daughter, the value of the daughter’s interest – the value of the property less the wife’s life interest – is includable in the grantor’s gross estate. Obviously, the daughter had to survive the grantor in order to receive the property. And in all probability, the grantor’s reversionary interest, valued immediately before death, exceeded 5 percent of the value of the property.<br /> <br /> The term “reversionary interest” means any possibility that the <em>property</em> may return to the donor or to his estate, and any possibility that the property may become subject to a power of disposition by him. The term does not, however, include a possibility that the income alone may return to the donor or his estate. Thus, retention of a secondary life estate would not constitute a reversionary interest (although it would cause inclusion under IRC Section 2036). Also, the term “reversionary interest” does not include a mere expectancy by the decedent that upon the death of the transferee he (or his estate) may reacquire the property under the will of the transferee or under state inheritance laws.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.    Treas. Reg. § 20.2037-1(c)(2).<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 />