Taxable Estate n Gross estate less u 2053 Expenses, debts, & taxes u 2054 Losses u 2055 Charitable deduction u 2056 Marital deduction u QFOBI deduction (repealed after 2003, but recapture)

Expenses, Debts, & Taxes n Funeral expenses n Administrative expenses u Note 642(g) n Claims against the estate n Unpaid mortgages u Recourse u Nonrecourse

Expenses, Debts, & Taxes n (a) property subject to claims (First Category) u as are allowable by the laws of the jurisdiction u probate assets / intestate administration assets

Expenses, Debts, & Taxes n (b) property not subject to claims (Second Category) u nonprobate assets u paid before the expiration of the period of limitation for assessment provided in 6501

Expenses, Debts, & Taxes n (c) (1) – Claims founded on promise or agreement (see 2043, 2516) n (c) (2) – If deductions exceed property subject to claims, disallowed except to the extent paid before return date (see 6075) u Thus limit is probate assets plus expenses paid from nonprobate assets before estate tax return filing date, including any extensions

6 Losses n Uncompensated losses during administration n Casualty or theft n 2032(b) – “No deduction…”

Charitable Deduction n Transfer to 2055(a) entity or organization n Concept of transfer is broad n No percentage limitations n 2055(c) interrelated

Charitable Deduction n Split interests u Charitable Lead Trust u Charitable remainder annuity trust u Charitable remainder uni-trust u Pooled income fund u Personal residence u Farm

9 Marital Deduction Section 2056

10 Marital Deduction n Development 1. No est. tax MD F Common law 100% F Community property 50% 2. No gift tax MD 3. Income tax F No MFJ status F Assignment of income doctrine

11 Marital Deduction n Development (cont.) F Est. tax MD - 1/2 AGI F Gift tax MD - 1/2 Gift F Income tax - MFJ F Est. tax - greater of 1/2 AGI or $250,000 F Gift tax MD - $100,000, 1/2 over $200,000

12 Marital Deduction n Development (cont.) F Est. tax MD - 100% F Gift tax MD - 100% F Tax policy

13 Marital Deduction (a) n Interest in property n passes / passed from D to S n in D’s gross estate n deferral not forgiveness

14 Marital Deduction (b)(4) n Reduction in MD u Taxes u Encumbrances u Interrelated MD u Drafting

15 Marital Deduction (b)(2) n Tainted Asset Rule u May be satisfied u Reduced by the aggregate value of such particular assets u Drafting

16 Marital Deduction Trust MD Income for life Principal Remainder

17 Marital Deduction (b)(1) n Terminable interest rule u Deferral not forgiveness

18 Marital Deduction (b)(3) n MD condition on survival u Tax policy u Estate administration u 6 months u Usually 30 or 60 days u Drafting

19 Marital Deduction Trust MD Income for life Principal Remainder

(b) (5) - GPA n Control u passing from D u all income for life annually to S u S has inter vivos / testamentary GPA u no power in another to appoint except for S u IRC deferral not forgiveness u Drafting - gift over

21 Marital Deduction Trust MD Income for life Principal Remainder

(b) (7) - QTIP n Control u Passes from D u S has qualifying income interest for life F all income for life annually F no power in another to appoint except for S u election by executor u Drafting

(b) (7) - QTIP n IRC deferral not forgiveness u 2207A - taxes n Total Return Trust

24 Marital Deduction Trust MD Income for life Principal Remainder

A QDOT n Purpose n Requirements u Trust established u U.S. Trustee u Withholding on corpus distribution u Additional requirements u Election

A QDOT n Requirements (cont.) u Passes to a QDOT u Trust reformed to QDOT F Power in will F Judicial proceedings u SS transfers to QDOT

27 Comparison of Estate Plans Simple WillCredit Shelter Trust Client’s Estate Value $1,350,000 All to Surviving Spouse Value $1,350,000 Net to Heirs Gross Estate $1,350,000 Estate Taxes $ 270,750 Net to Heirs $1,079,250 Total to Heirs $1,079,250 Does not reflect impact of State Death Taxes. Assumes both spouses die in 2000 or Credit Shelter Trust Gross Estate $ 675,000 Estate Taxes $ 0 Net to Heirs $ 675,000 Client’s Estate Value $1,350,000 To Surviving Spouse Value $675,000 Net To Heirs Gross Estate $ 675,000 Estate Taxes $ 0 Net to Heirs $ 675,000 Total to Heirs $1,350,000 Savings $270,750