If estate tax is an issue, the estate plan for a married couple will likely include at least two wills and two revocable trusts and may also include an irrevocable insurance trust. If the client’s spouse is not the mother of his children, or the remainder beneficiaries of an existing QTIP do not approve of widowed client’s second wife, an inherent source of conflict arises every time a QTIP marital-deduction trust is incorporated into the estate plan. Children of first marriage get remainder assets of QTIP, but only after such assets have been used to pay estate tax of second-wife’s estate (or estate taxes of widower’s estate). If the estate is of any size, who bears the estate tax may be the single biggest economic factor driving potential litigation. As such, it is imperative that tax payment provisions included in the testamentary documents be properly coordinated to address tax allocation issues related to QTIP trusts. This means the tax payment language in the will, the revocable trust, and the QTIP (and perhaps the insurance trust as well) all have to coordinate with one another. The following example clauses address these issues in the will and revocable trust:
Will — Tax-Payment Language
Expenses and Taxes. The term “expenses” includes all estate transmission or management expenses of my probate estate and all costs of my last illness and funeral; the term “estate taxes” means all state and federal estate, inheritance, or transfer taxes payable by reason of my death (including the generation-skipping transfer tax on any direct skip created by the express terms of this Will rather than by disclaimer), plus any related interest and penalties attributable to these taxes, but excluding any other generation-skipping taxes. I direct that all expenses of my estate and all estate taxes charged with respect to my gross estate for estate tax purposes (including estate taxes on assets that do not pass under this Will) be paid by the trustee of my Revocable Trust, as permitted under Section 733.817 and despite Section 738.201(2)(c) of the Florida Statutes. For these purposes, I incorporate by reference the tax apportionment provisions of my Revocable Trust. To the extent these amounts are not paid by my Revocable Trust, they are to be paid from my Residuary Estate, without apportionment, except to the extent provided in my Revocable Trust as to nonprobate and nontaxable assets.
Revocable Trust – Tax-Payment Language
If any portion of the Marital Trust is included in my wife’s gross estate for federal estate tax purposes, unless my wife specifically directs to the contrary in her Last Will, the Trustee shall pay from that portion the amount certified by my wife’s Personal Representative that state and federal estate taxes (including penalties and interest) for her estate are increased over the amount of those taxes computed as if that portion were not included in her gross estate (as provided in Section 2207A of the Internal Revenue Code). The Trustee may pay those taxes directly or to the Personal Representative of my wife’s estate, and the Trustee is to be held harmless from any liability for making payments in reliance on that certification.
I waive all rights of recovery under Sections 2206, 2207, 2207A, and 2207B of the Internal Revenue Code.
The Trustee may rely on a written statement signed by my Personal Representative as to the amount of those expenses and taxes. The Trustee may make payment directly or to my Personal Representative, as my Personal Representative requests. The Trustee will be held harmless from any liability in making payments as so directed.