QOW: Taxes and Taxidermy

The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.

— Mark Twain

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Modern Per Stirpes vs. Classic Per Stirpes

“Per stirpes” is a legal phrase which means (in the estate administration arena) “by representation”. It is used in state law to divide assets for decedents without a will; it is likewise used in wills to divide property by the testator.

A recent Nebraska estate provides an example of a common family situation, and how “per stirpes” could be interpreted, and how “per stirpes” should be interpreted.

In the Estate of Evans, the decent died intestate, without a surviving spouse, children, parents, or siblings. One sibling predeceased leaving two living daughters, another sibling predeceased leaving one living son.

Under Classic (or strict, or English) per stirpes, the decedent’s property is divided into two shares, because the decent has living relatives from two predeceased brothers. Under Modern (or American) per stirpes, the decedent’s property is divided into three shares for the three living nieces and nephews.

The distinction between the two methods of interpreting per stirpes is the generation at which the division is made. Under Classic per stirpes, the division is made at the decedent’s generation; under Modern per stirpes, the division is made a the first generation that has surviving issue.

The Modern per stirpes in the Nebraska case was correct, and really benefits the nephew who gets 1/2 of the estate instead of 1/3.

The case is covered by Wealth Management here.

See Estate of Evans, 20 Neb.App. 602, 827 N.W. 2d 314 (March 12, 2013)

Increased Estate Tax Exemption for 2018

target-clipart-target-clipart-1Official numbers from Treasury will not be released until late October, but here are my projections for 2018 estate and gift tax exclusion amounts:

  • The Basic Exclusion Amount (IRC §2010(c)(3)) used to compute the Unified Credit Against Estate Tax will probably be $5,600,000; this would be an increase of $110k (or 2.75%) over 2017’s exclusion amount;
  • This Basic Exclusion Amount of $5,600,000  is equivalent to a Unified Credit of $2,185,800;
  • The Gift Tax Annual Exclusion amount (IRC §2503(b)) should increase to $15,000; this will be the first increase since 2013. The gift tax annual exclusion is rounded down to the nearest multiple of $1,000. Any guesses on how long until the next increase in the annual exclusion?

These predictions assume that Congress makes no changes to the estate and gift tax laws before the end of the year.

Trust (& Estate) Returns – Extended Due Dates

Trusts (and calendar year estates) on extension are due two weeks later this year than last year.

Back in 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act (H.R. 3236) (“the Act”) made material changes to tax return due dates. Specific to the fiduciary income tax arena was the change in the permitted extension period. Previously, extensions granted to trusts and estate were for 5 months; now extensions are for 5 1/2 months. This change is effective this year; specifically for tax years beginning after 12/31/2015, which means 2016 tax returns which are due in 2017.

Treasury has recently issued updated regulations (T.D. 9821) to conform to the time period per the Act (see T. Reg. §1.6081-6T(a)(1)).

The IRS provided an extension form last winter (Form 7004) that provided for the 5 1/2 month extension; however the regulations were not updated until last month (7/18/2017).


Actually, trusts (and calendar year estates) get a few extra days this year: because 9/30/2017 falls on a Saturday, returns can be timely filed on Monday 10/2/2017.