Family Settlement Agreements
Even after a Will is filed with the Probate Court, if all of the decedent's heirs and beneficiares are in agreement with respect to an alternate distribution of the property, they are free to enter into what is commonly called a "912 Agreement" after the provision authorizing such an agreement, S.C. Code Section 62-3-912. The decision of the decedent's successors will be binding on the Personal Representative, but it is still important to be aware that the agreement may result in a gift from one successor to another. In most instances there will be no negative financial result to the parties, but there may be gift tax returns required as a result, even though no taxes are payable. 912 agreements are particularly useful in harmonious famlies where everyone knew what the decedent intended, but the Will was never brought up to date, or a Will was never made in the first place.
The Use of Qualified Disclaimers
When a beneficiary either does not want or need an intended inheritance, it may be "disclaimed," in which case the property passes as if the beneficiary predeceased the decedent. This completely avoids the gift issues outlined above. It is imperative the disclaimer is made within the statutorily prescribed time period, and that the beneficiary does not accept or receive any benefit from the property during the interim. The provisions in the Probate Code governing disclaimers can be found in S.C. Code Section 62-2-801, which refers in turn to S.C. Code Section 12-16-1910 and the provisions governing disclaimers found in Internal Revenue Code Section 2518. Disclaimers can be extremely valuable in large estates to avoid successive taxation, as property passes through generations of a family, but disclaimers are equally useful in smaller estates, to avoid successive administration when two deaths fall close in time when the ultimate beneficiaries are the same. It is important to understand that, in comparison to a 912 agreement, where beneficiaries agree on an alternate disposition, a disclaimant cannot direct the disposition of the property. It simply passes as if the beneficiary died first. Providing for alternate distribution in the event of a disclaimer is simply one more aspect of thorough planning.
Tax Elections by the Personal Representative
Whenever a Federal estate tax return is required, there are a number of possible elections that may be made with respect to how the estate will be taxed. Even when no estate tax return is required, there are still decisions to make concerning the selection of assets used to fund trusts or satisfy bequests which may have tax consequences.
Perhaps the single most important tax election a Personal Representative will make is whether to take advantage of a deceased spouse's unused exemption amount. This is important whenever the estate of the first spouse to die is not sufficiently large to trigger the filing of an estate tax return, but the estate of the second spouse to die will exceed his or her separate exemption amount. Estate taxes can be completely eliminated in this situation, without using a bypass or credit shelter trust, but only if the PR files an estate tax return for the first spouse to die, regardless of the size of the estate. The IRS clarified this requirement on October 17, 2011, Notice 2011-82 IRB 2011-42, page 516.
Perhaps the single most important tax election a Personal Representative will make is whether to take advantage of a deceased spouse's unused exemption amount. This is important whenever the estate of the first spouse to die is not sufficiently large to trigger the filing of an estate tax return, but the estate of the second spouse to die will exceed his or her separate exemption amount. Estate taxes can be completely eliminated in this situation, without using a bypass or credit shelter trust, but only if the PR files an estate tax return for the first spouse to die, regardless of the size of the estate. The IRS clarified this requirement on October 17, 2011, Notice 2011-82 IRB 2011-42, page 516.
The Importance of Assistance
There are many opportunities for continued planning after a death occurs. It is worth consulting an estate professional to be sure none are missed.