Tax Apportionment in Wills and Estate Documents: Allocating Wealth Transfer Taxes Among Beneficiaries

Tax apportionment is one of the most critical and often neglected parts of an estate plan. However, it can lead to serious tax consequences if the clauses are missing or defective. Tax advisers and fiduciaries need to have a thorough grasp on how tax apportionment clauses function within estate documents to allocate transfer taxes according to the testator’s intent.

A tax apportionment clause determines how the burden of wealth transfer taxes is spread out among beneficiaries of a taxable estate. If the provision is missing or unclear, state laws mandating some form of “equitable apportionment” will govern the allocation of estate tax liability. These state laws often will involve distribution of estate assets that may be contrary to the testator’s intent. Additionally, defective apportionments may impact marital and/or charitable deductions and may impose unexpected taxes on non-probate assets which are intended to pass outside of a will. In addition to state law provisions, practitioners must be aware how federal apportionment provisions apply.

Fiduciary advisers and tax compliance professionals must pay close attention to the structure of tax apportionment clauses in estate documents, especially for those states that impose a state-level wealth transfer taxes. Also, tax advisers must understand the exclusion of certain assets passed through QTIPs or other spousal structures.

Listen as our experienced panel discusses the sources of law regarding apportionment of federal and state taxes affecting estates. Learn how apportionment clauses affect the estate, gift, income, and generation-skipping tax as well as retirement assets.

1. Apportionment clauses in general
2. Source of law
   1. Federal
   2. State
   3. Equitable apportionment provisions
3. Impact of missing or defective tax allocation provisions
   1. Estate tax
   2. Gift tax
   3. Income tax
   4. Generation-skipping tax
4. Predeceased spousal assets previously qualifying for marital deduction
5. Apportionment clauses and retirement assets

The panel will review these and other high priority issues:

• What fiduciaries and tax advisers should scrutinize in tax apportionment clauses within the estate, gift, income, and generation-skipping tax regimes
• Treatment of property included in a decedent’s estate which previously qualified for the marital deduction in the estate of the decedent’s predeceased spouse
• How tax apportionment clauses affect retirement plan assets
• The sources of law for tax apportionment
• How portability and marital trusts affect tax clauses and apportionment
• Impact of tax apportionment clauses on distributions to grandchildren, other specific beneficiaries, or charities

Learning Objectives

After completing this course, you will be able to:

• Identify the components an effective tax allocation provision must have
• Determine the fiduciary administration and tax compliance impact of a missing or defective tax allocation clause in a will
• Discern options for the estate administrator for discretionary distributions in cases where the tax allocation provision may not conform with the testator’s intent
• Recognize the impact of state laws in jurisdictions that impose a separate estate or inheritance tax on tax allocations
• Meet tax reporting challenges involved in ambiguous tax apportionment clauseds

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, involved in complex estate planning, tax forms and schedules; Supervising other preparers/accountants. Specific knowledge and understanding of tax reporting of trust income for various types of assets held in trust; familiarity with calculating distributable net income

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).