subject: Payment of Estate Taxes [print this page] Payment of Estate Taxes Payment of Estate Taxes
Payment of Estate Taxes
How are the estate taxes to be paid?
Do you want each legatee to pay a share or do you wantthe taxes paid from the residuary estate?
This is a matter to be considered and discussed in detailwith your lawyer, because the Internal Revenue Code providesthat, unless the deceased dkects otherwise in his Will, if anypart of the gross estate consists of proceeds of policies of lifeinsurance payable to a beneficiary other than the estate, theexecutor is entitled to recover from the designated beneficiarysuch portion of the total taxes paid as is attributable to theinclusion of the proceeds in the gross estate. This may be a hardship on the beneficiary, may defeat your purpose in naming the beneficiary, and is usually a contingency on which youhad not planned. The rule, however, does not apply to theproceeds passing to a spouse, for which a marital deduction isallowed.
Similar provisions of the Internal Revenue Code require taxapportionment among the beneficiaries receiving property bythe exercise of a power of appointment. For this reason, awife's Will disposing of property which has been left to her under a marital trust with a power of appointment will frequently specify that the power is being renounced. This question of renunciation of a power is one which should bebrought to the wife's attention at the time the Will is madeand a written memorandum should be prepared for her, andshe herself, executing her own Will and her revised Will afterthe death of her husband, should take care to renounce thepower of appointment.
Learn More About Life Estate Planning
Except for the provisions of the Internal Revenue Codediscussed in this section of this chapter, state law determineswho bears the tax burden. Some states, by statute or by decisions of their courts, require that in the absence of aspecific direction in the Will, the tax shall be apportioned toprovide that property passing outside the probate estate (that is, that part of the estate which is disposed of by Will), butwhich is included in the taxable estate even though not passing under the Will, will bear its share of the tax. Such property may be life insurance, jointly owned property passing bysurvivorship, the principal or corpus or revocable trusts created during the lifetime of the decedent, property transferredto take effect at death, and property over which the deceasedheld a power of appointment.
In the absence of directions by the deceased, and by theapportionment laws of the state, the tax will fall upon theresiduary estate. The course most frequently recommended byattorneys is to specify that the residuary estate under the Willis to bear the tax burden. This will preclude apportionment. Ifyou want an apportionment and if you and your lawyer decide that an apportionment will more fully express yourwishes, specific provisions should be made in your Will.
