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

Form 706 is due nine months from the decedent’s date of death and a six-month
extension is commonly granted. Whenever a Clayton-style election is used, the
planner should consider whether to apportion estate taxes attributable to the property
that is not elected for the marital deduction. Id.
d. Qualified domestic trust (I.R.C. §2056A)—QDOT.
1) As explained above, this trust must be used to claim a marital deduction when
the surviving spouse is not a citizen of the United States.
2) A QDOT has very specific requirements, including that the non-citizen spouse
cannot be a trustee of the trust. Be certain to follow Treas. Reg. §20.2056A when
drafting a QDOT.
II.
ESTATE AND GIFT TAXES
A. Federal Estate Tax
1. History
a. Since its inception in 1797, the federal estate tax format and rates have changed
significantly, including at least four repeals. Most recently, the 2001 Economic Growth and
Tax Relief Reconciliation Act (“EGTRRA”) increases the federal applicable exclusion amount
gradually before the tax is completely repealed in 2010 and replaced with a carry-over basis
income tax system. At the same time, the maximum estate tax rate gradually decreases. The
gift tax system is not repealed in 2010, but the tax rate is reduced. Then, in 2011, the Byrd
Rule’s sunset clause repeals EGTRRA itself, and the pre-EGTRRA estate tax returns.
b. As of January 1, 2011, the federal estate tax exclusion amount returned to $1,000,000,
which was the pre-EGTRRA federal estate tax exclusion for 2006. It is also important to
remember that EGTRRA has wider applications beyond the repeal of the federal estate tax and
that, by changing the federal estate tax, gift tax and generation-skipping transfer tax
provisions, EGTRRA has significantly impacted marital deduction planning.
Historical Information on Federal Estate Tax Applicable Exclusion and Credit Amounts
Year Maximum Rate Exclusion Credit
2008 45% $2,000,000 $780,800
2009 45% $3,500,000 $1,455,800
2010 Repeal Repeal N/A
2011 60% $1,000,000 $345,800
2. ATRA legislation passed in 2013 changed the exemption again such that it is now $5,250,000
and will continue increasing for inflation. Planners and estate administrators will have to
remain constantly aware of the adjustments to this number to ensure the funding formulas are
used and applied correctly.
3. While I.R.C. Section 2001(a) establishes the federal estate tax, the exemption is established by
section 2010(a), which provides a “credit of the applicable credit amount shall be allowed to
the estate of every decedent against the tax imposed by section 2001.” The corresponding
federal applicable exclusion amounts are set forth in a table following section 2010(c).
However, for gift taxes, section 2505(a) fixes the applicable exclusion amount at $1,000,000
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