Some information about Estate Planning

The Estate Tax

Upon the death of an individual, Federal estate taxes are imposed on the transfer of wealth. The estate tax is calculated upon the value of a decedent’s “gross estate”. The gross estate can be defined as the value of all property in which the decedent had any interest at the time of his death along with certain other statutorily mandated items).

Every decedent who is a citizen or resident of the United States will have an estate tax is imposed on his taxable estate. The amount determined for the estate tax due is based on the computation of a taxable amount which is then multiplied by a progressive tax rate. A Form 706 (Estate Tax return) must be filed in every case within nine months after the decedent’s death, although an extension of an additional six months is generally granted upon the filing of an application for extension.

Gross Estate Inclusions

The gross estate’s property interests are usually valued at fair market value on the date of death. Some special rules regarding the inclusion of property in a decedent’s gross estate are as follows:

  • Property Owned Outright This is the simplest and most apparent category of items that are included in the gross estate. It comprises property a decedent owned individually and outright.

  • Jointly-Held Property and the Estate Tax If joint property is held with rights of survivorship between husband and wife, then one-half of the value of such joint property is included in the gross estate of the first joint tenant to die and the other one-half is excluded from the gross estate. If a joint property is held with right of survivorship between people who are not husband and wife, then the entire value of any joint property will be included in the estate of the first joint tenant to die, unless the estate can definitely prove that the surviving joint tenant supplied the money used to purchase the joint property.

  • Life Insurance The proceeds of any life insurance on the decedent’s life is included in his gross estate if:
    1. the policy proceeds directly or indirectly payable to the decedent’s estate; or
    2. the decedent held any incident of ownership in the policy, such as the right to change the beneficiary, surrender or cancel the policy or borrow against the policy.

Marital Deduction Planning

In a variety of estate tax deductions, clearly the most important is the unlimited marital deduction providing an estate tax deduction for property left to a surviving spouse. There are two basics of the unlimited marital deduction:

  • An Interest is required to be passed on to the Surviving Spouse. A marital bequest has to be to a legally recognized spouse. A marital deduction bequest will not be warranted to a divorced or deceased spouse. The surviving spouse is required to be a citizen of the United States.

  • The Interest must be a Deductible Property Interest. A deduction is not warranted from a simple passing of property from a decedent to a surviving spouse. Interest is deductible only to the extent such interest is included in the determination of the value of the gross estate. The reason for this rule is simple; if an item is not included in the gross estate, its passing should not qualify for a deduction.
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