May 01, 2001

More Estate and Gift Tax Planning for Nontraditional Families (2001, 15:03)

Probate and Property, May/June 2001, Volume 15, Number 3

The present article focuses on the complex issues raised by qualified retirement plans. Both traditional and nontraditional family members hold retirement assets and enjoy the benefits of tax-free compounding. But because only legally married couples can take advantage of the “spousal rollover” under Code § 408(d)(3)(C), planning for the disposition of a nonmarried couple’s retirement assets is considerably more challenging. Not only are retirement plans included at full value in computing the estate tax, but the beneficiary also will pay the associated income tax liability in full. Although an income tax deduction for the estate tax attributable to the retirement plan that can be passed on to the beneficiary will partially mitigate the double tax burden, the beneficiary will need a significant amount of cash to pay these taxes. After factoring in both the income tax and the estate tax, the combined tax bite on a retirement account can be as high as 80%.

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