What is a disclaimer? A disclaimer is an irrevocable statement that the beneficiary/recipient of an asset does not wish to receive the asset.

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What is a disclaimer? A disclaimer is an irrevocable statement that the beneficiary/recipient of an asset does not wish to receive the asset. The disclaimed asset passes as if the disclaimant had predeceased the person transferring the asset.

Inheritance under Will or Trust Intestacy Non-probate property Powers of Appointment Jointly owned property Effect of a qualified disclaimer: The disclaimed interest is treated as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer The person making the disclaimer is not treated as making a gift. If an estate disclaims an interest it would otherwise receive, the decedent's estate does not include the value of the disclaimed property

Requirements for Disclaimer : Section 2518(b) and Treasury Reg. 25.2518-2 and 20 Pa.C.S. 6201 provide the requirements for a qualified disclaimer. If the disclaimer is not a qualified disclaimer, it typically is treated as a gift. The disclaimer must be irrevocable and unqualified The disclaimer must be in writing The writing must be delivered within nine (9) months from the date of death The disclaimant cannot accept any of the interest being disclaimed or any of its benefits The interest disclaimed must pass without any direction on the part of the person making the disclaimer. Specific Rules Commencement of 9 month period from which to make the disclaimer: Lifetime transfers: the transfer creating the interest occurs when there is a completed gift for Federal gift tax purposes, regardless of whether a gift tax is imposed on the completed gift. Transfers at death: the transfer creating the interest occurs on the date of the decedent's death. Nine Month Time Limit - The disclaimer must be filed within nine months after the later of the date on which the transfer creating the interest is made or the date on which the disclaimant attains age twenty-one (federal rule).

Acceptance of Interest or its Benefits A qualified disclaimer cannot be made if the disclaimant has accepted the interest or its benefits Acceptance can be either express or implied Acceptance is manifested by an affirmative act which is consistent with ownership of the interest in property Acts indicative of acceptance include using the property or the interest in property; accepting dividends, interest, or rents from the property; and directing others to act with respect to the property or interest in property Taking delivery of an instrument of title, alone, does not constitute acceptance Disclaimed interest must pass without direction of the disclaimant. Exception for surviving spouse in certain cases where it passes to a trust under which the surviving spouse still is a beneficiary, provided access is limited by an ascertainable standard.

The regulations provide that the interest of a joint tenant with rights of survivorship or a tenant by the entireties (other than in a bank, brokerage and other investment accounts), regardless of whether it can be unilaterally severed, is deemed to be a one-half interest. This is the case regardless of whether the disclaimant contributed any of the property and regardless of the portion of property includable in the decedent s estate under 2040. Reg. 25.2518-2(c)(4)(I) Special rule for joint bank, brokerage and other investment accounts: Transfer creating the survivor s interest occurs on the death of the deceased cotenant. Therefore, the disclaimer must be made within nine (9) months of the decedent s death. Surviving joint tenant may not disclaim any portion of the joint account attributable to contribution or consideration furnished by that surviving joint tenant

Right to Disclaim: The recipients of interests by whatever means can disclaim such interests. Such interests include: a beneficiary under a will an appointee under the exercise of a power of appointment a person entitled to take by intestacy a joint tenant with right of survivorship a donee of an inter vivos transfer beneficiaries of life insurance, annuities, and retirement assets Disclaimer Requirements (PA Law): Must be in writing and shall: describe the interest disclaimed declare the disclaimer and extent thereof; and be signed by the disclaimant (A disclaimer can be made on behalf of another person through the authority contained in a power of attorney or by the personal representative of an estate) Must be delivered and filed in some instances (see below)

The acceptance of part of a single interest shall be considered as only a partial acceptance and will not be a bar to a subsequent disclaimer of any part or all of the balance of the interest if the part of the interest is accepted before the expiration of six months from: The death of the decedent in the case of an interest that would have devolved by will or intestacy; or the effective date of the transfer in the case of an interest that would have devolved by an inter vivos transfer or third-party beneficiary contract. The acceptance of a part of a single interest after the expiration of such six-month period shall be considered an acceptance of the entire interest and a bar to any subsequent disclaimer thereof but shall not be an acceptance of any separate interest given under the same instrument.

Interests passing through Will or intestacy Inter vivos transfers Assets passing through contractual arrangements Powers of appointment Real Estate Disclaimers by Fiduciaries or Agents Personal Representative if authorized by Will or otherwise requires court approval Guardian of minor Court appointed guardian of incapacitated person if authorized by court Agent under Power of Attorney if power of attorney specifically authorizes

72 P.S. 9116(c) provides separate requirements for a disclaimer to be effective for Inheritance Tax Purposes. 9116(c) refers to a renunciation of right to receive a distributive share of an estate, whether under an inter vivos trust, a will or the intestate law for no consideration. The tax shall then be computed as though the persons who benefit by such renunciation were originally designated to be the distributees The renunciation shall be made within nine months after the death of the decedent. Note that 9116(c) applies to the inheritance tax effect of making a disclaimer within 9 months. Ch. 62 of Title 20, addresses the transfer effects when a disclaimer is made. Therefore even though a disclaimer that is made 10 months after death will not be effective for inheritance tax purposes, as long as the requirements of Ch.62 are met, the transfer may be effective for PA purposes. Compare Federal law, which will not recognize a dislcaimer not made within 9 months. For Federal tax law, an untimely disclaimer is instead treated as a gift. There are planning opportunities for disclaimers to pass wealth to younger generation without gifting Consider when death of beneficiary may be within short time of decedent and there is no survivorship provision in Will Be careful making disclaimer if beneficiary is Medicaid recipient or may be applying for Medicaid can cause ineligibility period

Federal Estate Tax 40% Tax Date of death value $5,490,000 basic exclusion amount (2017) $5,600,000 basic exclusion amount (2018)* Marital Deduction Charitable Deduction *subject to tax reform bill House and Senate Bills: $11,000,000 basic exclusion House Bill only: Estate tax repeal 2025 and beyond

Must Reduce the size of the gross estate Reduce the federal estate tax No federal estate tax Marital Charitable Portability Stock - Date of death is 1/2/2017 Google, Inc. = Mean Value on 1/2/2017 $44 (High $46; Low $42) Alternate Value: Sell Google, Inc. on 3/2/2017 for $42 Distribute to Beneficiary on 4/2/2017 value $41 Hold on 7/2/2017 mean value is $45

Alternate value=sum of all asset values Elect on Federal Estate Tax Return Alternate Value MUST Reduce the value of the Gross Estate AND Reduce Federal Estate Tax -Marital Deduction / no tax estates Elect on timely return Elect on late return (up to 1 year after due date) Irrevocable Form 706 (Rev. 8-2017) Estate of: Barney Fife Part 3 Elections by the Executor Decedent s social security number 111 11 1212 Note: For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Part 6 Portability of Deceased Spousal Unused Exclusion. Note: Some of the following elections may require the posting of bonds or liens. Yes No Please check Yes or No box for each question (see instructions). 1 Do you elect alternate valuation?........................... 1

Date of death on or after 1/1/2011 Deceased Spousal Unused Exclusion Used by surviving spouse Election Timely filed Federal Estate Tax Return

Complete and properly prepared Portability filing only no value needed for Marital Deduction Items Charitable Deduction Items Timely filed federal estate tax return however Rev. Proc 2017-34 provides relief for certain late filed returns Form 706 (Rev. 8-2017) Decedent s social security number Estate of: Barney Fife 111 11 1212 Part 6 Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount.

Tim dies 2017 Leaves $1,000,000 to son Everything else to wife Tim s Basic Exclusion $5,490,000 Used $1,000,000 DSUE to wife $4,490,000 Section C. DSUE Amount Portable to the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse. 1 Enter the amount from line 9d, Part 2 Tax Computation............... 2 Reserved............................. 3 Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions)... 4 Add lines 1 and 3........................... 5 Enter amount from line 10, Part 2 Tax Computation................ 6 Divide amount on line 5 by 40% (0.40) (do not enter less than zero)............ 7 Subtract line 6 from line 4........................ 8 Enter the amount from line 5, Part 2 Tax Computation................ 9 Subtract line 8 from line 7 (do not enter less than zero)................ 10 DSUE amount portable to surviving spouse (Enter lesser of line 9 or line 9a, Part 2 Tax Computation).. 1 5,490,000 2 3 0 4 5,490,000 5 6 7 5,490,000 8 1,000,000 9 4,490,000 10 4,490,000

DSUE applies to Surviving spouse lifetime gifting first Then to surviving spouse s estate Wife can shield $4,490,000 (DSUE) $5,490,000 (Exclusion) $9,980,000 Filing for portability only: Page 1 box 11: If you are estimating the value of assets included in the gross estate on line 1 pursuant to the special rule of Reg. section 20.2010-2T(a)(7)(ii) check here

Taxable Gifts of survivor use DSUE first. Portability does not apply to GST Portability election is irrevocable. Executor can supersede a previous election by filing due date of return (Reg 20.2010-2(a)(4)).

Late Portability Election Rev. Proc. 2017-34 Decedent survived by spouse Died after 12/31/2010 Was a US citizen or resident Executor was not required to file because gross estate was less than the basic exclusion amount ($5,490,000) Executor did not file a timely return (9 months) Late Portability Election Rev. Proc. 2017-34 File a complete and properly prepared Form 706 on or before the later of: January 2, 2018, OR Second annual anniversary of Decedent s death Write on Return: FILED PURSUANT TO REV PROC. 2017-34 TO ELECT PORTABILITY UNDER 2010(c)(5)(A)

Trusts for surviving spouse that qualify for marital deduction: Withdrawal right General power to appoint to estate, creditors, or creditors of estate I give the residue of my estate to the Trustees to be held in trust as follows: Pay all income to my husband quarterly; Pay principal to husband for health, support, maintenance; At husband s death, pay all remaining principal and income to my children. (a) (b) (c)

I give the residue of my estate to the Trustees to be held in trust as follows: Pay all income to my husband quarterly; Pay principal to husband for health, support, maintenance; At husband s death, husband has limited power to appoint to my issue. In default of appointment, pay all remaining principal and income to my children. (a) (b) (c) I.R.C. 2056(b)(7)(B) qualified terminable interest property passes from the decedent Surviving spouse has a qualifying income interest for life Income payable at least annually No person has a power to appoint property to anyone other than surviving spouse Election made under 2056(b)(7)(B)

Non-productive property Surviving spouse must have right to convert Local law Instrument Stub income does not have to be paid to surviving spouse s estate

WHEN: Gift tax Timely filed gift tax return 6 month extension Estate Tax Timely filed return, with extensions On first estate tax return filed late CONSEQUENCE: Marital Deduction No tax at first death Trust subject to Federal Estate Tax when surviving spouse dies Federal estate due paid from Trust unless surviving spouse specifically exonerates under 2207A

Percentage or fraction Numerator the amount necessary to reduce federal estate tax to zero Administration: Divide trust into QTIP and non-qtip parts Transferor Decedent Donor (gifts) QTIP trusts surviving spouse Skip person Two or more generations below transferor grandchildren A trust with beneficiaries of all skipped persons

Lineal descendants of Transferor s grandparent Non-lineal descendants A person more than 37 and ½ years younger than transferor Tax rate of 40% Generation-skipping tax exemption 2017 $5,490,000 2018 $5,600,000

Direct Skip I give $1,000,000 to my granddaughter, Jenna

$1,000,000 in trust for my wife. Income and principal to wife during her lifetime. At wife s death, in trust for son. Income and principal to son during his lifetime. At son s death, outright to granddaughter.

Unlimited estate tax marital deduction Surviving spouse must be a US citizen No marital deduction if surviving spouse is not a US citizen Exception Qualified Domestic Trust

One trustee a US citizen or corporation Created/maintained under US state law No distributions of principal unless US trustee can withhold QDOT tax Distributions except for hardship and income are subject to estate tax Property at survivor s death subject to estate tax Irrevocable election made List trust on Schedule M Marital Deduction Name of Trustee Description of Transfer EIN

File Form 706-QDT on 4/15: Distribution of principal to surviving spouse Death of surviving spouse Disqualification of Trust No tax if: Distribution of income Corpus on account of hardship Administrative dispositions

PRE-PAYMENT OF INHERITANCE TAX 72 PA.C.S. 9142 Estimated payments of inheritance tax within 3 months of the date of decedent s death 5% discount of amount of actual tax (owed vs. paid) Must be postmarked (or hand delivered) on or before the 3 month anniversary of decedent s death

Rates 0% to surviving spouse 4.5% to lineal heirs 12% to siblings 15% everyone else No tax on charities Date of Death: 12/1/17 Discount payment due: 3/1/2018 $100,000 payment Divide payment by.95 to calculate discount $105,263.16 credit

72 P.S. 9102 "Transfer of property for the sole use." A transfer to or for the use of a transferee if, during the transferee's lifetime, the transferee is entitled to all income and principal distributions from the property and no person, including the transferee, possesses an inter vivos power of appointment over the property. 72 P.S. 9113 (a) In the case of a transfer of property for the sole use of the transferor's surviving spouse during the surviving spouse's entire lifetime, all succeeding interests which follow the interest of the surviving spouse shall not be subject to tax as transfers by the transferor if the transfer was made by a decedent dying on or after January 1, 1995; provided that the transferor's personal representative may elect, on a timely filed inheritance tax return, to have this section not apply to a trust or similar arrangement or portion of a trust or similar arrangement

72 P.S. 9113 (b) Succeeding interests not subject to tax as transfers by the transferor by reason of subsection (a) shall be deemed to be transfers subject to tax by the surviving spouse of the property held in the trust or similar arrangement at the death of the surviving spouse. The tax on that property shall be based upon its value at the death of the surviving spouse, the tax rates applicable to dispositions by the surviving spouse or by the transferor, whichever are lower, and any exemptions relating to the kind or location of property held in the trust or similar arrangement at the surviving spouse's death I give the residue of my estate to the Trustees to be held in trust as follows: (a) (b) (c) Pay all income to my wife quarterly; Pay principal to wife for health, support, maintenance; At wife s death, pay all remaining principal and income to my children.

Election: Pay tax based on value at husband s death OR Pay tax when wife dies

Inheritance Tax Result on $3,332,517 trust To wife: Income $197,884 x 0% = $0 Principal $313,463 x 0% = $0 Remainder interest to children: $2,821,169 x 4.5% = $126,953

At Jane Doe s death value = $3,332,517 Tax = 4.5% x $3,332,517 $149,963 Compare tax with election to prepay: $126,953

Elect to prepay: Trust will appreciate Surviving spouse will not use funds Do not prepay: Will spouse move out of state? Will assets depreciate? Will surviving spouse deplete trust funds? A transfer of a qualified family-owned business to one or more qualified transferees is exempt from inheritance tax if It continues to be owned by a qualified transferee for seven years after decedent s death Is reported on a timely filed inheritance tax return* *Under recent legislation Act 43 of 2017, 72 P.S. 9116 was amended to add a new provision treating any tax return filed after 12/31/12 which makes an election under 9111 (s), (s.1) or (t) considered timely filed if filed within 1 year of the tax return due date, and any extension

Fewer than fifty full time employees Net book value less than $5,000,000 Wholly owned by decedent and members of decedent s family that are qualified transferees Trade or business not management of investments or income producing assets Existed at least 5 years before death Husband or wife Lineal descendants Siblings and sibling s lineal descendants Ancestors and ancestor s siblings No in-laws

Annual certification to Department of Revenue: Continues to be owned by qualified transferee Disqualification Inheritance tax and interest due

WHO: Surviving spouse WHAT: 1/3 of certain property WHEN: Within six months of later of date of death, or probate HOW: In writing to Orphans court Copy to personal representative WHAT: 1/3 of: Probate property Intestacy Property Revocable Trusts Trusts with retained income interest

SURVIVING SPOUSE MUST OFFSET THE 1/3 RD WITH ITEMS HE/SHE MUST DISCLAIM: Property not awarded as part of election General power of appointment property Trusts created by decedent Life insurance Annuities Pension, profit sharing, retirement Spouse has 6 months to make election may need to consider an extension of time Election is irrevocable Consider property spouse may have to give up to make election Certain property is not subject to election need to understand what can elect against

Decedents dying after 7/1/2012 72 P.S. 9111(s) and (s.1) provide an election to exclude certain real property that is used for farmland-other or agricultural use. Check box 4 on front of Inheritance Tax Return (Rev-1500) Complete Schedule AU and attach to the Return.

Fiscal year Begin: Date of death Short Fiscal Year Long Fiscal year

Decedent dies 3/5/2017 Longest Fiscal Year End: 2/28/2018 1041 Due Date: 6/15/2018 Pay beneficiary income 9/30/2017 K1 issued 6/15/2018 Beneficiary reports on 2018 return due 4/15/19 Decedent dies 11/15/17 Longest Fiscal Year End: 10/31/2018 Significant capital gains: September 2018 Short fiscal year from 11/15/17 to 8/31/18 Initial 1041 Due Date: 12/15/2018 September 2018 gains reported on 9/1/18 to 8/31/19 year Return due 12/15/19

Decedent dies 12/9/17 Longest Fiscal Year End: 11/30/2018 $100,000 per year IRA payments due estate 2017 No IRA payment due 2018 IRA payment must be taken by 12/31/2018 Take 2018 IRA distribution in December 2018 December 2018 IRA distribution reported on 12/1/18 to 11/30/19 year Return and Tax due on 3/15/20 For Tax Years Beginning in 2017 If Taxable This Rate of Income is: This Amount PLUS of Excess Taxable Income $ - $ -0-15.0% $2,550. $ 382.50 25.0 % $6,000. $1,245.00 28.0% $9,150. $2,127.00 33.0 % $12,500. $3,232.50 39.6%

3.8% Net investment income tax Estate/Trust threshold $12,500 2017 Individual Amounts Single or Head of household $200,000 Married filing jointly $250,000 Married filing separately $125,000 Qualifying widow(er) with a child $250,000 Accrued Savings Bond Interest Decedent s Final 1040 Election under Section 454(a) Estate s Fiduciary Income Tax Return (1041) Beneficiary s 1040

Decedent s Final 1040 Election under Section 454(a) Itemized deduction offset Medical expenses Impact on taxability of social security Federal Estate Tax Deduction 40% Federal Estate Tax Rate Fiduciary Income Tax Deduction 39.6% Income Tax Rate 3.8% Net Investment Income Tax Deduction

Executor Fees Attorney Fees Appraisal Fees, etc. Deduct on Federal Estate Tax Return: Federal Estate Tax Deduct on Form 1041 Fiduciary Income Tax No Federal Estate Tax Return No Federal Estate Tax Estate Portability

The undersigned Executrix hereby certifies that the deductions used in computing the taxable income of the Estate for the fiscal year ending 10/31/17 have not been used as deductions from the gross estate of the decedent for federal estate tax purposes under IRC 2053 or 2054. The undersigned waives all rights to have such items allowed at any time as deductions under said Code Sections. Deduct on Federal Estate Tax Return: Federal Estate Tax 40% rate Deduct on Decedent s final 1040 Paid within one year of death Waiver filed Not allowed as estate tax deductions Waive right to take on Federal Estate Tax Return 10% AGI threshold

Trusts: Calendar year tax reporting Estates: Fiscal year tax reporting 645 Election Estate and Revocable Trust combined on Form 1041 Elect on Form 1041 for Estate Executor and Trustee File Form 8855

Distribution of property in kind to a beneficiary does not result in gain or loss to the trust or estate, unless the distribution is in satisfaction of a right to receive a distribution in a pecuniary amount or in specific property other than that distributed To avoid double taxation, federal estate tax paid on items of IRD can be deducted on Fiduciary Income Tax Return when recognized in income Amount of deduction is determined by calculating the amount of estate tax paid on the IRD items.

Direct Rollover of IRA Rollover of Eligible Rollover distribution made by a qualified plan If estate or trust is beneficiary surviving spouse does not have same rollover options unless certain requirements are met. Trusts must use a calendar year for income tax reporting A revocable trust may be treated as part of an estate for income tax reporting by making an election on Form 1041 Election permits the trust and estate income and deductions to be reported on one fiduciary income tax return

Requirements for Qualification: The decedent must be a citizen or resident of the United States. 6166(a)(1). The value of the decedent's interest in a closely held business must exceed 35% of the "adjusted gross estate" (defined in 6166(b)(6)). (Gifts made within three years of death are considered in determining whether the 35% requirement is satisfied, but not for purposes of determining the amount of tax that may be deferred. See 2035(d)(4).

The deferral only applies to an interest in a closely held business and does not apply to passive investments. There are specific objective tests to determine whether the business is closely held. If the IRS denies (or terminates) a 6166 election, the taxpayer has the right to petition the Tax Court for a declaratory judgment under 7479. See Rev. Proc. 2005-33, 2005-24 I.R.B. 1231. The Internal Revenue Service conditions their approval of installment payment of estate taxes pursuant to IRC 6166 on the furnishing of a surety bond under IRC 6165 or the election to have a special lien placed on property that has a value equal to the amount of the deferred tax plus the first four years of deferred interest. IRC 6324A. Certain real property used by the decedent or a member of the decedent's family for farming or in a closely held business Personal representative can elect to value the real property on the basis of its value as a farm or in a closely held business, rather than the FMV of the property determined on the basis of its highest and best use

Decedent must be a US citizen or resident At least 50% of the adjusted value of the estate must consist of the adjusted value of the real and personal property used in the business At least 25% of the adjusted value of the estate must consist of the real property alone. The property must be qualified real property During at least 5 years of the last 8 years prior to the death of the decedent: The property was owned by the decedent or a family member and used for a qualified use (as a farm or in a trade or business) and The decedent or a member of the family materially participated in the farm or the business. Special attention should be made to any S corporation stock as part of an estate Executor may need to elect to treat trust as a Qualified Subchapter S Trust or Electing Small Business Trust

Determination must be made whether to make an election under Section 754 to adjust the basis of partnership property.

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