Saturday, December 15, 2012

Tax Court Rules Payments to Settle Possible Beneficiary's Claims Against Estate are not Deductible for Estate Tax Purposes

Distributions to beneficiaries are not deductible for Federal Estate Tax purposes while claims for estate expenses are deductible.  In Estate of Bates v. Comm'r, T.C. Memo 2012-314 (Tax Ct. 2012), the Tax Court ruled that a decedent's estate could not deduct payments made to a caregiver who was also a named beneficiary under the decedent's instruments.  The Tax Court opined that because the payments were made to settle the right to the caregiver's beneficial interests, rather than claims against the estate, they were therefore non-deductible payments.
This issue of whether a claim by a beneficiary is really a distribution or rather a payment of an expense is a fact sensitive question.  Proper planning and presentation of appropriate evidence is therefore necessary to attempt to succeed to permit the deduction.

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