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STEP CHILDREN CLAIM THAT MARITAL DEDUCTION WAS IMPROPER A
father (F) predeceased his wife (W).
W is the stepparent of the children (C) of F.
Why would the C claim that a marital deduction taken in their F’s
estate was improper? In
order to obtain a marital deduction for property placed into marital trust
for the benefit of the surviving spouse, the surviving spouse must get at
least all of the income of the trust for life, payable not less frequently
than annually. Understand
that when F’s estate obtained the marital deduction it means that the
assets in the marital trust upon the death of W must be included in W’s
taxable estate. Estate taxes
resulting from that inclusion must be paid by the beneficiaries of that
trust, e.g., the C. In the
instant case, the trust allowed the trustee (of which W was one) to make
payments to W in “...convenient installments as determined at the sole
discretion of the trustees.” W,
as a co-trustee of the trust, could, in that capacity, make distributions
of income and principal of the trust to herself at any time. Upon
the death of W, the trust property was included in W’s gross taxable
estate. The C, who are
entitled to the trust assets after the death of the stepparent, must now
pay any estate tax attributed to including the trust assets in the gross
taxable estate of W. The C
did not like that one bit. If
the marital deduction were not allowed in their F’s estate, W and the C
would have shared the additional tax as opposed to the C paying all of the
tax attributed in W’s estate. Thus
if the marital deduction stands, the C pay all of the estate tax
attributed to the trust assets in the W’s estate. The
court found that since the W (as a co-trustee) could invade corpus of the
trust where income was insufficient, the testator intended that the
payments be made annually. The court said that such a provision may be inferred
considering the language in the testator’s Will and other circumstances,
including the failure of the Will to provide for an accumulation of
income. The
court found that the overwhelming intent of the testator as evinced in the
document was to achieve a marital deduction.
See Warner Jr. v.
United States, KTC 2006-254 (C.D. Ca. 2006). Moral of the Story:
If you are seeking to obtain a marital deduction employing a trust for a
surviving spouse, make sure that the statutory requirements are followed
and don’t leave it to the court to try to discern what was meant. |
