By Steven MullerA number of important changes have been made in the past several years in estate and gift taxation. This memorandum summarizes the pertinent Estate and Gift Tax provisions as they affect estate planning.
1. THE MARITAL DEDUCTION: The Internal Revenue code ("IRC") and North Carolina grant an unlimited gift and estate tax deduction for all transfers to a spouse whether made during life or death. Thus, any one may give or leave his or her entire estate to the surviving spouse without gift or estate taxes. The following qualify for the marital deduction: Outright gifts and bequests, jointly-held property, life insurance, joint and survivor annuities, certain life estates in real estate, and trusts of which the surviving spouse is sole income beneficiary for life.
2. MARITAL DEDUCTION ("Q-TIP") TRUST: The IRC and North Carolina permit a marital deduction in the estate of the first spouse to die, for a trust which provides for all income to the surviving spouse for life. Upon his or her death the balance in the trust will pass to the person or persons named in the trust clause. This kind of trust - called a "Q-TIP" - may be used to prevent a diversion of assets from the decedent's family, such as may occur upon a remarriage of the surviving spouse. It is particularly helpful in second marriage situations with combined families.
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