HS330

3. Chart for Computing Federal Estate Tax STEP 1 Gross estate Funeral and administration expenses/debts/taxes Losses Adjusted gross estate STEP 2 Marital deduction Charitable deduction State death tax deduction Total deductions

4. Chart for Computing Federal Estate Tax (continued) STEP 3 Taxable estate Adjusted taxable gifts (post-1976 lifetime taxable transfers not included in gross estate) Tentative tax base(total of taxable estate and adjusted taxable gifts) Tentative tax Gift taxes payable on post-1976 gifts

5. Chart for Computing Federal Estate Tax (continued) STEP 4 Estate tax payable before credits Tax credits Applicable credit amount Credit for foreign death taxes Credit for gift tax for pre-1977 gifts Credit for tax on prior transfers

7. Marital Deduction Requirements Surviving spouse is a U.S. citizen Marital status exists Inclusion of property in decedent-spouse’s gross estate Property must pass to surviving spouse Transfer not a terminable interest

8. Types of Marital Deduction Transfers By: Intestacy Will Election against the will Contract (life insurance) Survivorship (decedent’s joint tenancy interest)

9. Lifetime spousal transfers(Sections 2036, 2037, & 2038 retained interests) Successful will contest Qualified disclaimer Types of Marital Deduction Transfers (continued)

10. Marital Deduction Problem FACTS: Pat recently died. Pat owned only probate assets. Pat’s will left everything to husband Joe.

11. Pat’s: Gross estate $4,950,000 Administration expenses $ 60,000 Debts $ 240,000 Funeral expenses $ 10,000 Marital Deduction Problem (continued)

12. Allowable marital deduction = $4,640,000 $4,950,000 Gross estate less $ 310,000 Estate expenses $4,640,000 Adjusted gross estate less $4,640,000 Marital deduction equals 0 Taxable estate Marital Deduction Problem (continued)

13. Terminable Interests To my spouse unless remarriage To my spouse for life, then to children To my spouse on a condition/event To my brother, then to my spouse

14. Exceptions to Terminable-Interest Rules Conditional on spouse surviving decedent by 6 months Life estate in spouse and spouse has general power of appointment over property  Power of Appointment Trust

15. Life estate in spouse and property passes to spouse’s estate (Estate Trust) Life insurance policy payable to spouse for life and spouse has general power of appointment over proceeds Exceptions to Terminable-Interest Rules (continued)

16. Qualified terminable-interest property (QTIP)  Exceptions to Terminable-Interest Rules (continued)

17. Example Decedent-spouse’s $4,950,000 Adjusted Gross Estate Will provides for CEBT of $3,500,000 Will provides for Marital Power of Appointment Trust $1,450,000 ESTATE TAX PAYABLE $ 0 Marital Deduction Power of Appointment

18. Overqualification and Underqualification Overqualification: Value of decedent-spouse’s property $4,950,000 Value of surviving-spouse’s property $ 0 Marital deduction amount $4,950,000

19. Underqualification: Value of decedent-spouse’s property $4,950,000 Value of surviving-spouse’s property $ 0 Marital deduction amount $ 950,000 Decedent’s applicable exclusion amount (2009) $3,500,000 Overqualification and Underqualification

20. Marital Deduction Formula Bequests Pecuniary amount Fixed dollar marital deduction amount Fractional share Fractional share of estate residue