Upstate Estate Law, P.C. Blog

Installment E of A to Z is ESTATE TAX EXEMPTION.  This is an estate tax term that is equal to the amount of assets that an estate can transfer without incurring estate taxes. The related term is the estate tax exemption credit, which is equal to the amount of estate tax credit against the estate tax.

The federal estate exemption credit has been tinkered with mightily over the past decade or so.  For the years 2011 and 2012, the federal exemption is equal to $5,000,000.00, which corresponds to an estate tax credit of $1,730,800. Alas, beginning January 1, 2013, the estate tax exemption credit is scheduled to be reduced to $1,000,000.00, unless a new law is enacted by Congress between now and then.

If you are curious as to what the South Carolina estate tax exemption amount is, SC does not currently impose a separate estate tax. See my prior post where I discuss the unceremonious end of the South Carolina estate tax here.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation. 

Installment D of A – Z is DISCLAIMER.

Internal Revenue Code section 2518 allows a South Carolina beneficiary to execute a qualified disclaimer, resulting in transmission of the disclaimed property as if the disclaimant had predeceased the decedent. Utilizing disclaimers as part of the estate plan builds in flexibility.  This technique can be used in the context of disclaimer trust planning for estate tax purposes, or in the context of IRAs and qualified plan transmission to accomplish favorable income tax treatment, to describe but a few uses.

Treasury Regulation section 25.2518-2 lists the following “Requirements for a Qualified Disclaimer”.

(a) In general. For the purposes of section 2518(a), a disclaimer shall be a qualified disclaimer only if it satisfies the requirements of this section. In general, to be a qualified disclaimer—

(1) The disclaimer must be irrevocable and unqualified:

(2) The disclaimer must be in writing;

(3) The writing must be delivered to the person specified in paragraph (b) (2) of this section within the time limitations specified in paragraph (c)(1) of this section;

(4) The disclaimant must not have accepted the interest disclaimed or any of its benefits; and

(5) The interest disclaimed must pass either to the spouse of the decedent or to a person other than the disclaimant without any direction on the part of the person making the disclaimer.

The use of qualified disclaimers should be carefully thought out, and quite frankly, should only be utilized under the supervision of an attorney or tax professional. Disclaimers can be tricky. I have heard the following horror story arise from the uninformed use of disclaimers: A man died without a Last Will. Under SC intestacy law, the beneficiaries of the estate were to be the man’s surviving spouse and his two children. The two children wanted to do the “right thing” by their mother and signed a disclaimer of their inheritance.

The problem? Well, the two children had children of their own. When you disclaim an inheritance, the disclaimed property is treated as though the disclaimant predeceased the Decedent. In this case, under South Carolina’s anti-lapse statute, the inheritance that was disclaimed did not go to the Disclaimants’ mother but instead went to the disclaimants’ children. Making things worse was that the disclaimants’ children were minors, who would have a guardian ad litem appointed for them by the Probate Court to protect their newly created property interests.

The moral of the story is that qualified disclaimers of property should only be undertaken under the supervision of an experienced estate attorney who will carefully analyze the law to determine where the disclaimed property would go after the disclaimer is made.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation. 

This installment of Greenville Estate Attorney A – Z is CAPACITY, as in, CAPACITY to make a Last Will and Testament. The capacity to make a Last Will is actually a lower standard than that to enter into a regular contract.

Capacity to make a Last Will requires the following:

1. The Testator (person making the Will) understands what his/her estate assets are;

2. The Testator knows the natural objects of his affections; and

3. The Testator knows to whom he/she wishes to leave his/her estate to.

This is a rather low standard, even a clinically insane person can execute a Last Will and Testament if it is done during a lucid interval. The capacity to make a Revocable Trust is actually the same as that to make a Last Will, this is stated by statute, SC Code 62-7-601.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

A BYPASS TRUST (also called a credit shelter trust, the “B” trust of the “AB” trust arrangement, or the family trust) is a type of trust typically set up by a married couple that is concerned about estate tax liability.

The bypass trust is set up to receive that amount of assets that equals the amount of the federal estate tax exemption in effect when the first spouse dies.  It is called a bypass trust because the assets contained in the trust escape estate taxation when the surviving spouse passes away, in effect, ‘bypassing’ estate taxation in the surviving spouse’s estate.

The beneficiary of the bypass trust is usually the surviving spouse, but this is actually not required. Children of the first spouse to die are often included as beneficiaries as well.

The requirements of the bypass trust are rather simple. It is usually funded by a provision in a Last Will or Revocable Living Trust which in effect states that it is to be funded up to the amount of the federal estate tax exemption amount (there are numerous ways that this funding provision can be drafted, but it is usually easily recognized once you see it).

Other requirements are that the surviving spouse is typically entitled to all the income from the bypass trust, plus a portion of the principal of the trust each year equal to the greater of $5,000.00 or 5% of the principal.  The surviving spouse may have some power to appoint the bypass trust assets upon death to certain beneficiaries that he or she names, this is called a limited power of appointment. (*A limited power of appointment cannot be included in the event that it is expected that the bypass trust will be funded as a result of a qualified disclaimer by the surviving spouse.)

The surviving spouse may be the sole trustee of the bypass trust, but this requires some restrictive language if the bypass trust allows for the making of discretionary principal distributions from the trust. The language allowing distributions must state that distributions from the trust may only be made for the health, education, maintenance, and support of the surviving spouse. If there is a co-trustee serving with the surviving spouse, the co-trustee can be given broad discretion to make distributions for the welfare of the surviving spouse. It is typically beneficial to have a co-trustee serve alongside the surviving spouse.

The bypass trust offers a method by which spouses whose estates will be valued near the federal estate tax exclusion amount can be sure to take full advantage of each of their estate tax exclusions. It should not be attempted without professional help, it takes more than just signing the trust document to make it work, the ownership of assets will most likely need to be rearranged as well.

I will revisit the bypass trust once I make my way to P, when I will discuss the new estate tax concept of Portability.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation. 

The first installment of Greenville Estate Attorney A through Z is ADMINISTRATION, as in estate administration.

Estate administration is a multi-step process wherein a representative of a Decedent’s estate is appointed by the Probate Court, estate assets are collected, debts and expenses paid, necessary tax returns filed, and distributions to the proper estate beneficiaries made.

Estate administration in South Carolina is typically a nine month process, from the date of the appointment of the Personal Representative to the filing of the final accounting with the Probate Court. In contested matters, it can take much longer. There are also multiple variations of estate administration, depending on whether there is a Last Will and Testament or not, and depending on whether there is a contest, and depending on the size of the estate.

There are different types of proceedings that can arise from estate administration. For example, a surviving spouse may initiate proceedings to claim an elective share against the estate.  Arguing beneficiaries may initiate proceedings to construe a Last Will and Testament, because they cannot agree on the meaning of a certain term or phrase. A beneficiary may initiate proceedings to remove the current representative of the estate. A creditor may initiate proceedings to be paid by the estate.

Estate administration can be as varied as the lives of each Decedent. It truly can be stated that no two estate administrations are exactly alike.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.