Apportionment Clause

Apportionment Clause

When more than one property insurance policy covers the same event, a clause stating that each policy only provides coverage in proportion to the total coverage each policy provides. For example, one may have two policies covering one's home from fire damage. Policy A provides maximum coverage of $40,000 and Policy B provides $60,000, for a total of $100,000. If the home catches fire causing $50,000 in damage, the apportionment clause in each insurance policy requires that Policy A pay for $20,000 and Policy B pay for the remaining $30,000.
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The apportionment clause has had an accidental but venomous effect on federal tax policy over the years.
There is no requirement under the apportionment clause that the tax burden be apportioned across the states by population, as Professor Jensen says, but only that a direct tax be apportioned.
Jensen, The Constitution Matters in Tax, 100 TAX NOTES 821 (2003) (urging that we take the apportionment clause seriously and claiming that all taxes except income taxes and taxes resembling sales taxes must be apportioned).
An apportionment clause determines which beneficiaries will bear the payment of estate taxes.
There is usually a clause in the will called the tax apportionment clause which spells out who is responsible for the estate tax, both on items that pass through the will and on property that passes outside the will, such as an IRA or life insurance proceeds.
In the absence of an effective tax apportionment clause, state law will generally determine where the ultimate burden of the estate tax will fall.
If the estate is large enough, it might mean that the residuary beneficiary will receive no property as a direct result of the tax apportionment clause.