A Key Ingredient in Your Estate Plan: Proper Tax Apportionment

Private Wealth Services attorney Monika Jain published an article in the New York State Bar Association's (NYSBA) Trusts and Estates Law Section Journal about tax apportionment and its role in estate planning. Tax apportionment directs an estate's fiduciaries to pay estate taxes from a certain source. Section 2002 of the Internal Revenue Code states that an executor shall pay the federal estate tax but is silent on allocation among beneficiaries (i.e., apportionment). On the other hand, Section 2-1.8 of New York's Estates, Powers and Trusts Law (EPTL), similar to other state laws, provides detailed rules regarding apportionment. In her article, Ms. Jain cautions against boilerplate apportionment language that overrides default state regulations and instead recommends tailored provisions that fit a client's assets and financial situation; after assessing the estate plan, practitioners can advise on paths such as directing taxes to be paid from the residuary estate or simply following state law stipulations. She goes on to review cases in which a will directs estate taxes to be paid from the residuary estate but also seemingly creates multiple residuary estates and thus causes confusion as to which beneficiaries should pay the tax. The article concludes with factors counsel should consider when advising on the best way to allocate estate taxes.

READ: A Key Ingredient in Your Estate Plan: Proper Tax Apportionment (NYSBA membership required to view)