Estate Tax Credits and Computations (Portfolio 844)

Tax Management Portfolio, Estate Tax Credits and Computations, No. 844-3rd, analyzes the complicated rules that apply under §§2010 through 2016 of the Internal Revenue Code.

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Tax Management Portfolio, Estate Tax Credits and Computations, No. 844-3rd, analyzes the complicated rules that apply under §§2010 through 2016 of the Internal Revenue Code. Topics covered include the operation of the unified credit against estate tax, unified credit planning, computations of the state death tax credit and deduction, and the credit for prior transfers. In addition, the Portfolio discusses the history of the various estate tax credits, the limitation on the use of these credits, as well as the interaction of the credit and deduction for state death taxes with state tax systems and other interrelated calculations. The Portfolio also analyzes the effects of choosing to deduct expenses on the estate return or the estate's income tax return under the 1999 “Hubert”regulations.
The Portfolio reviews in detail the credit for foreign death taxes, the limitations on the credit, and how the foreign death tax credit is affected by estate tax treaties. Miscellaneous provisions affected by estate tax credits, such as the credit for death taxes on remainders and recovery of taxes claimed as a credit, are also discussed.
The Worksheets are highlighted by a number of hypotheticals illustrating the estate tax computations and the appropriate IRS forms for claiming the credits.
This Portfolio may be cited as Peebles, 844-3rd T.M., Estate Tax Credits and Computations.


Laura H. Peebles, CPA/PFS

Laura H. Peebles, B.S. University of New Orleans (1987) (summa cum laude), Certified Public Accountant, District of Columbia and Louisiana (Elijah Watt Sells Award 1988), Personal Financial Specialist. Member AICPA and State Society of Louisiana CPAs. Frequent writer and speaker on estate and charitable planning topics.

Mike Schlect

Mike joined Deloitte Tax LLP in 2008 and has practiced in our Private Wealth industry since joining. He helps clients achieve their personal wealth and charitable objectives. He specializes in high-net worth individuals and family offices. For his clients, he consults on pre and post mortem planning, charitable planning, fiduciary income taxation, and estate administration. He also helps clients address the risks and costs of dealing with taxing authorities generally, including resolution of individual tax examinations and their related gift tax, estate tax, and partnership tax examinations.

Previously, Mike worked in our National Tax office in Washington, D.C., assisting Private Wealth clients across Deloitte Tax’s national practice. In the National Office, he developed his specialization in individual client issues that allows him to serve clients out of the San Francisco Bay area.


Table of Contents

Detailed Analysis

I. Introduction

II. Unified Credit Against Estate Tax - § 2010

A. History

B. Operation of Credit

1. Calculation of Gift Tax

a. Gift Tax Unified Credit

b. Net Gifts

c. Gift Splitting

d. Finality of Gift and Estate Tax Values

2. Calculation of Estate Tax

a. Calculation of Unified Credit

(1) Limitation on Credit

(2) Taxable Estates over $10 Million

b. Marital Deduction Calculations

(1) Unlimited Marital Deduction

(2) Administration Expenses That Adjust the Marital Deduction

(a) For Estates of Decedents Who Die on or After December 3, 1999

(b) For Estates of Decedents Who Died Before December 3, 1999

(3) Credit Shelter Bequest/Bypass Trust Plan

(a) In General

(b) Credit Shelter Trust

(c) State Death Tax Credit (Estates Before 2005 or After 2010)

(d) Planning for Federal and State Unified Credit Differences

(4) Disclaimers by Surviving Spouse

c. Tax Allocation Clauses

(1) Background

(2) Common Problems

(a) Multiple Tax Allocation Clauses

(b) Tax Paid from a Portion of the Estate That Would Otherwise Qualify for the Marital or Charitable Deduction

(c) All Tax Allocated to Other than a Particular Specific Bequest

(d) A Tax Allocation Clause Requiring the Payment of Transfer Tax from the Probate Estate

(e) Right-of-Recovery Statutes

(i) Sections 2206 and 2207

(ii) Section 2207A

(iii) Section 2207B

(f) Generation-Skipping Transfer Tax Default Allocation Provision

III. Credit for State Death Taxes - § 2011

A. History

B. Computation of the § 2011 Credit (Pre-2005 Estates)

1. Taxes Eligible for the § 2011 Credit

2. Amount of the § 2011 Credit

a. "Actually Paid" Requirement

b. Time Limitation on Claiming the § 2011 Credit

c. Calculating the § 2011 Credit

3. Special Limitation Involving the § 2053(d) Deduction

C. Interaction with State Death Tax System

1. In General

2. Planning Technique

D. Relationship to § § 2015 and 2016

IV. Credit for Gift Taxes Before 1977 - § 2012

A. In General

1. Section 2012 Credit Applies Only to Pre-1977 Gifts

2. Gifts Subject to the § 2012 Credit

B. Computation of the § 2012 Credit

1. General Rule

a. Tax Paid By Other than Decedent

b. Gift Tax Paid After Donor's Death

2. Limitations on the § 2012 Credit

a. The "First Limitation"

(1) "Amount of the Gift"

(2) Gift Splitting

b. The "Second Limitation"

(1) Value of Gift

(2) Valuation Reductions

(a) Annual Exclusion

(b) Charitable Deduction

(c) Marital Deduction

(3) Value of the Gross Estate

(4) Gift Splitting

C. Other Considerations - Reciprocal Gifts

V. Credit for Prior Transfers - § 2013

A. Introduction

B. History

C. Operation of the Credit

D. "Transfer" of "Property"

1. "Transfer"

2. "Property"

3. Ascertainable Value

a. Life Estate

b. Discretionary Trusts

c. Powers of Appointment

E. Computation of the § 2013 Credit

1. General Rules

2. The Percentage Reduction

a. In General

b. Transfer to Decedent Who Dies Before Transferor

3. Value of the "Transferred Property"

a. In General

b. Susceptible of Valuation

c. Determining Life Expectancy

(1) Pre-§ 7520 Law (Rev. Ruls. 66-307 and 80-80)

(2) Section 7520

d. Remainder Interests

e. Powers of Appointment

4. Section 2032A

5. Reduction in the Value of the "Taxable Estate" and the Transferred Property

a. Death Taxes Borne by the Decedent

b. Administration Expenses in Accordance with the Principles of the Hubert Regulations

c. Encumbered Property or Obligations Assumed by the Decedent

d. Property That Qualified for the Marital Deduction in the Transferor's Estate

6. Limitations on the Credit

a. In General

b. The "First Limitation"

(1) Multiple Transferors

(2) Generation-Skipping Transfers

c. The "Second Limitation"

(1) Death Taxes Chargeable to Charitable or Marital Bequests

(2) Multiple Transferors

(3) Example of Second Limitation

F. Successive Transferors

G. Relationship to § 6166

H. Nonresident Decedents

VI. Credit for Foreign Death Taxes - § 2014

A. Background

B. Taxes Eligible for Credit

C. Situs of Property

D. Limitations on Credit

1. First Limitation - Foreign Taxes Attributable to Property

2. Second Limitation - Federal Estate Tax Attributable to Foreign Property

E. Special Limitations Period

F. Recovery of Taxes Claimed as Credit

G. Proof of Credit

H. Estate Tax Treaties

1. Double Taxation

2. Application of Credit Under Tax Treaty

VII. Miscellaneous Provisions

A. Credit for Death Taxes on Remainders - § 2015

1. Computation of the Credit

2. Election to Postpone Payment Under § 6163

3. Claiming the Credit

4. Examples

B. Recovery of Taxes Claimed as Credit - § 2016

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Computations Applying the Hubert Regulations

Worksheet 2 Estate Tax Computations, Illustrations

Worksheet 3 Computation of the § 2012 Credit - Illustration and Form 4808

Worksheet 4 Computation of the § 2013 Credit - Illustrations and Schedule Q

Worksheet 5 Form 843 (Protective Claim for Refund)





Committee Reports/Public Laws:

Treasury Procedures and Rulings:



Tax Management Portfolios:


Unified Credit Against Estate Tax - § 2010








Credit for State Death Taxes - § 2011










Credit for Prior Transfers - § 2013



















Credit for Foreign Death Taxes