In one of the estate's motions for summary judgment, it claimed it was entitled to a marital deduction equal to the value of Sommers's nonprobate property that Sommers's wife received that was exempt from the estate's debts and expenses under New Jersey law.
The Tax Court denied the estate's motion, explaining that a determination of whether the estate was entitled to a marital deduction for the nonprobate property turned on the factual question of the extent to which assets otherwise exempt from claims against the estate were used to pay the reported debts and expenses, and the record before the court was insufficient to make this determination.
Similarly, the beneficiary designations on nonprobate property
such as life insurance and annuities should be checked to avoid having, for example, the death benefit proceeds of a life insurance policy be paid outright to the surviving spouse.
(4) This concept excluded nonprobate property (sometimes referred to as "will substitutes") from the computation of the surviving spouse's share.
The application of the analysis will show that the attempts of courts to extend a traditional elective share statute to include nonprobate property wrongly allows courts to introduce public policy factors into areas where the legislative decision deserves primacy.
The statute also said that the executor was under no duty to recover any pro rata portion of such taxes from the beneficiary of any nonprobate property
. In a suit by the executor to recover from the life insurance beneficiary a pro rata share of the estate tax due (the insurance proceeds having been found includable in the gross estate for federal estate tax purposes), the Eleventh Circuit held that the federal statute (6) prevailed over the state statute and allowed the executor to recover.
Both probate and nonprobate property
will qualify for QDOT treatment if transferred directly from the decedent to the QDOT, or irrevocably assigned to the QDOT prior to the time that the federal estate tax return is filed.
(40) Like the rationale for applying the revocation-by-divorce doctrine to wills, the UPC provision assumes a decedent would not want his nonprobate property
to go to an ex-spouse.
Therefore, even nonprobate property
, i.e., assets passing outside probate by contract or by law (e.g., life insurance, deferred annuities, qualified plans, and IRAs) can be eligible for an estate tax charitable deduction.
The will should specify who pays taxes on both probate and nonprobate property
Beneficiaries in receipt of nonprobate property
face a similar challenge.
A fundamental ownership concept is the difference between probate and nonprobate property
. A misunderstanding of this distinction will likely result in the (all-too-common) mistake of reporting taxable income (and less frequently, deductions) on the estate's Form 1041 instead of a beneficiary's Form 1040.