Probate & Trust Law Section Conference Manual ... - Minnesota CLE

2) Fractional share: As the value of the assets fluctuate over the course of
administration, the credit shelter share and the marital share reflect their proportionate
share of the increase or decrease in value.
a) Example: If my spouse survives me, I give to my spouse that
fractional share, if any, of my residuary estate which - after taking into
account all interest in property passing pursuant to previous provisions of this
will or apart from this will and after taking into account the credits allowable
to my estate by Section 2010 and (to the extent is does not increase the death
tax payable to any state) by Section 2011 of the Internal Revenue Code – will
produce a total marital deduction of the minimum size required to result in the
lowest possible net federal estate tax upon my estate. In computing the
numerator and the denominator of the fraction that determines the share of my
residuary estate passing pursuant to this paragraph, the values of all assets as
finally determined for federal estate tax purposes shall control.
b) Advantages:
(i) Any increase or decrease in the estate’s assets are shared by
the martial share and credit shelter share proportionately.
(ii) Funding of the trusts is not a taxable event which will trigger
capital gains or losses to the estate.
(iii) See Rev. Rul. 60-87: In this case the I.R.S. clarifies the
distinction between fractional formula funding and pecuniary formula
funding and states that funding of trusts in a fractional formula estate
does not recognize capital gain or loss.
c) Disadvantages:
C. Types of Bequests: Outright or in Trust
1. Outright.
(i) If the assets of the estate decrease in value during the course
of administration, the amount that can be sheltered from estate tax on
the death of the first spouse is proportionately reduced.
(ii) When using a “pure” fractional formula, the fraction is
applied to each asset in the estate and each asset is “split,” with a
portion of each assets being distributable to the marital share and a
portion of each asset being distributable to the credit shelter share.
This typically makes administration more difficult. However, it is
possible to use a hybrid fractional “pick and choose” method of
funding which allows the Executor to allocate “whole” assets to
certain shares as long as the assets allocated to each share, in total, are
fairly representative of appreciation and depreciation of post estate
tax values.
a. This is the most straightforward bequest. It is often used for the share passing to the
surviving spouse if it is a first marriage and after-death control of the assets is not an issue.
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