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IF THE WILL DOESN'T FIT, TOUGH.
October 25, 2005
When Maurice Johnson died in 2000, his family overrode his will by agreement among the beneficiaries because the document was "unworkable." But the Iowa Department of Revenue thinks it works just fine.
In a ruling issued yesterday, the Department said that it would compute Iowa's inheritance tax based on the will, not the family settlement agreement. This makes a difference because the inheritance tax is computed differently based on who inherits the decedents property. From the letter:
The Iowa Supreme Court has held that where property is transferred in a manner in which the Iowa inheritance tax is imposed under section 450.3, a settlement agreement which provides for the receipt of assets in a different manner is not to be used to determine whether the inheritance tax will be imposed. In re Estate of Bliven, 236 N.W.2d 366 (Iowa 1975). The Bliven case is on point as to the overriding legal proposition that settlement agreements will not be allowed to control taxation. The Review Unit is confident in rejecting the argument that the inheritance tax calculations must be based upon the distributions mandated by the Settlement Agreement.
The Moral? If you don't get the will right, your beneficiaries can't fix your inheritance tax mistakes once you're gone.
UPDATE: Great comment below from Joel of the Death and Taxes blog, where he points out how disclaimers can often patch a bad estate plan.
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Comments
"If you don't get the will right, your beneficiaries can't fix your inheritance tax mistakes once you're gone."
Actually, they can, in certain cases -- by using a disclaimer. Here's an easy case:
Dad dies in 2005, leaving a $5 million estate in equal shares to Mom and Son. The estate tax exemption amount is $1.5 million, so an estate tax will be due. Son executes a disclaimer that meets the requirements under the Internal Revenue Code and state law, disclaiming all but $1.5 million of his share. As a result, $1.5 million passes to Son, Mom gets the other $3.5 million, and no estate tax is due because of the exemption (in the case of Son) and the marital deduction (in the case of Mom).
I assume that the facts in this case somehow prevented the use of disclaimers.
Posted by: Joel S. | October 25, 2005 9:37 AM
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