Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, July 31, 2008

Unifying rules for tax apportionment for wills and revocable trusts


Earlier on this blog, I discussed an article focusing on whether the law of probate and non-probate transfers should be unified.

Continuing with the "unification" trend, Ira Mark Bloom (Justice David Josiah Brewer Distinguished Professor of Law, Albany Law School) has recently published his article entitled Unifying the Rules for Wills and Revocable Trusts in the Federal Estate TAx Apportionment Arena: Suggestions for Reform, 62 Univ. Miami L. Rev. 767 (2008).

Here are some excerpts from the article's conclusion:

Unification of the law of wills and revocable trusts in the area of federal estate tax apportionment is far from complete despite the near unanimous rule of apportionment among the states. Lack of uniformity is most evident regarding the ability of a decedent to change default rules on federal estate tax apportionment. * * *

Another state law matter involves the lack of uniformity on conflict of laws issues.* * *

Federal statutes on apportionment vastly complicate the area. * * *

In addition, the federal statutes may conflict with state laws on changing default rules. * * *

Must this morass of confusion and disarray continue? I think not. One suggestion is to have either federal law or state law control the substantive issues involving federal estate tax apportionment instead of the current situation where both laws control some facets of federal estate tax apportionment. But which set of laws should control? When most states used a burden on the residue approach, it probably made sense for federal law to control the area to ensure apportionment. Today, when apportionment is the controlling principle in virtually all states, I think it makes more sense for state law to determine the burden of federal estate taxes. * * *

My solution would have state rules on federal estate tax apportionment exclusively control for both probate property * * * and for all nonprobate property. In effect, state law apportionment rules would provide all default rules. Unlike the federal reimbursement-type statutes, which first require payment of the estate tax and then recovery, the apportioned tax would be initially allocated to all nonprobate transfers. * * *

Under my approach two new federal statutes would replace the repealed federal statutes to ensure uniformity among the states. The first statute would eliminate conflict of laws disputes when a decedent had property outside the domiciliary state. Specifically, the federal statute would mandate that the law of decedent's domicile govern the substantive rules on apportionment wherever the property is located and that collection of apportioned taxes from a fiduciary or beneficiary be authorized without regard to domicile. The net effect of these steps--state domiciliary law controls the substantive rules for federal estate tax apportionment but federal law ensures the effectuation of these rules--would be the elimination of both the federal and state conflicts that presently exist with federal estate tax apportionment.

The second federal statute would address the other area of disunity: the ability (or inability) to change default rules by revocable trusts. Consistent with the view that revocable trusts are the functional equivalent of wills, I would propose a federal statute that allows revocable trusts to do exactly what can be done under a will in changing a state's default rules. * * *

I recognize that states traditionally provide rules regarding wills and revocable trusts and that federal statutes on the matter, including a statute to eliminate the conflict of laws issues, would be unusual.  The countervailing reasons for these federal statutes, however, seem persuasive. In one fell swoop, the rules for wills and revocable trusts in the federal estate tax apportionment arena would become virtually uniform.


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