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

for tax years 2002 through 2010. Now, under ATRA we have the applicable exclusion
amount set at $5,000,000 at the federal level as of 2013. Note that the new Minnesota tax bill
appears to be adding a Minnesota gift tax element although as of this writing the details are
not fully known.
B. Preparing Schedule M of the Federal Estate Tax Return
1. The marital deduction is claimed on Schedule M—Bequests, Etc., to Surviving Spouse of the
United States Estate (and Generation-Skipping Transfer) Tax Return, IRS Form 706. The
instructions for completing Schedule M are found in Form 706 itself. According to the
instructions, the tax preparer should “list each property interest included in the gross estate
that passes from the decedent to the surviving spouse and for which a marital deduction is
claimed.”
a. Note that every asset appearing on Schedule M should also appear on another
schedule on the estate tax return. Schedule M is where you list the asset in order to claim the
marital deduction. You report the existence of the asset and its inclusion in the gross estate on
other schedules.
b. The instructions ask the preparer to include a cross reference to the item listed on
Schedule M to the schedule where the asset is included in the decedent’s gross estate. For
example if the decedent owned real estate that is reported on Schedule B and that real estate is
devised to the spouse, then list it on both schedules, and on Schedule M include a
parenthetical cross-reference such as “(See Schedule B, item 1).”
2. No double deductions: If the estate has already taken a deduction for part or all of the
property on Schedules J through L, however, the taxpayer is not allowed to take an additional
deduction on Schedule M for the same property interest. For example, if you are including
real estate on Schedule M for which you have already taken a deduction on Schedule K for the
outstanding mortgage, you need to reduce the value of the real estate by the mortgage
deduction.
3. The easiest way to qualify for the marital deduction is to leave assets to a spouse outright.
4. Qualified terminable interest property (“QTIP”) that qualifies for the marital deduction must
be listed on Schedule M. One note of caution: the value of the property entered in whole or in
part on Schedule M will be granted a marital deduction unless the taxpayer specifically limits
the deduction to a portion of the property.
5. To partially elect marital deduction treatment for QTIP property, make sure not to
inadvertently take a complete marital deduction for the full value of the trust property. In
other words, the practitioner must specify the amount of property to which the QTIP election
applies.
6. Keep in mind that, if you are electing a marital deduction for an IRA or qualified plan account,
those accounts are qualified terminable interest property. Thus, you must elect the percentage
subject to the marital deduction. It is wise to state the percentage even if it is 100%. If the
account is payable to a qualifying marital trust for the surviving spouse, both the account (as
QTIP property) and the martial trust (as a QTIP marital trust or a general power of
appointment marital trust) must be listed on Schedule M.
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