1976, December, Pg. 1831. Tax Tips.

5 Colo.Law. 1831

Colorado Lawyer

1976.

1976, December, Pg. 1831.

Tax Tips

1831Vol. 5, No. 9, Pg. 1831Tax TipsMarital Deduction Clauses Under the 1976 Tax Reform Act

The "Tax Tips" column in the November 1976 issue of the Colorado Lawyer dealt with the effect of the recent Tax Reform Act on Estate and Gift planning. This column concerns itself only with the estate tax consequences of various marital deduction provisions in estate planning documents.

The Maximum Marital DeductionMany estate planning documents provide in one form or another for "the maximum marital deduction." Under the estate tax law in existence until December 31, 1976, this phrase refers to 50 percent of the federal adjusted gross estate. Under the Tax Reform Act of 1976, except as provided by the transitional rule described below, the phrase will mean the greater of one-half of the adjusted gross estate or $250,000. The illustrations (Illustrations 1-5) show that, as a result of this new meaning, use of the maximum marital deduction language can subject moderate-sized estates to substantially higher federal estate taxes upon the death of the surviving spouse.

The 50 Percent Marital DeductionAnother popular approach is to define the marital deduction by the phrase "50 percent of my adjusted gross estate." In addition, for decedents dying after December 31, 1976, and before January 1, 1979, whose property passes under an estate planning document in effect prior to January 1, 1977, a provision for the "maximum marital deduction" will be interpreted by a transitional rule to mean a marital deduction equal to 50 percent of the adjusted gross estate. In estates under $425,000, the combined estate taxes in both spouses' estates will be less under this phrasing or interpretation than where the maximum marital deduction is provided for in the first estate. However, in estates under $500,000, the 50 percent marital deduction will impose additional taxes on the first estate.

The "Minimum" Marital DeductionAs a result of the pitfalls created by the application of the maximum marital deduction and 50 percent marital deduction clauses, a new approach should be considered. This we shall refer to as "the minimum marital deduction." Examples of two clauses intended to create the minimum marital deduction are set forth as follows:

Marital Deduction---Fractional...