The Right of a Decedent to Apportion Federal Estate Tax

The Right of a Decedent to Apportion Federal Estate Tax

By Prof. John H. Skarbnik

In estate planning it is important to determine if the testator or transferor has the right to apportion the federal estate tax, and if so, the scope of that right. The testator's right to apportion the federal estate tax depends, in part, on what law is applicable, and in part, on whether the testator or transferor wants the property generating the estate tax to bear all, some or none of its proportionate share of the tax, or more or less. In this Analysis, Prof. John H. Skarbnik discusses the right of a decedent to apportion federal estate tax. He writes:

     The federal estate tax will be paid from the probate estate if and to the extent the testator's will provides for such payment. This applies to the federal estate tax attributable to the probate estate. It also applies to the federal estate tax attributable to property passing outside of probate, such as life insurance proceeds payable to a beneficiary other than the executor, property subject to general powers of appointment, and QTIP trusts or other property. The federal statutes apportioning the tax and granting rights of recovery do not apply if the decedent directs otherwise in his will.

     Federal statutes supercede state law apportionment statutes to the extent they are applicable. In a case involving the apportionment of taxes on QTIP property, the Nebraska Supreme Court stated, "As an initial matter, we note that Congress' general intent with respect to the federal estate tax is that it be governed by state law and that absent contrary congressional enactments, state law governs the allocation of tax burden. However, we conclude that § 2207A directly applies to the question presented by this appeal and, as such, is a contrary congressional enactment. As a result, we conclude that § 2207A preempts any applicable state law to the extent that state law might purport to deal with the payment of federal estate tax attributable to QTIP." [Blauhorn v. Cockle (In re Ervin Blauhorn Revocable Trust), 275 Neb. 256, 746 N.W.2d 136 (Neb. 2008) [enhanced version available to subscribers]].

     However, where a court finds that a testator's intent was contrary to the result that occurs as a result of the application of the apportionment of taxes pursuant to the federal statute, they may reform the Will. In a New Jersey appellate case, a testator created a Will that created a QTIP trust for the benefit of his spouse. Following the death of the spouse, property was to pass to the testator's family member and to two charitable trusts.

(footnotes omitted)

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