In some states, old laws about what a spouse gets when their partner dies are no longer valid. Instead, there are new rules about how much the surviving spouse should get from the deceased spouse’s stuff. These new rules take into account things like the debts the deceased spouse owed, the cost of their funeral, and how much it costs to handle their estate. This makes sure the surviving spouse doesn’t get too much, which would hurt the other people who are supposed to get stuff from the deceased spouse. In Rev. Rul. 64-101, the IRS ruled that the dower portion for a surviving spouse in Florida does not count as part of the estate’s distributable net income. This means it’s not subject to certain tax rules.
In a later case, the Tax Court ruled that a widow’s elective share in an estate is also not subject to these tax rules. This decision came after a widow received a large share of her deceased husband’s estate, and then had to deal with a big tax bill. She tried to fight the IRS on this, but ultimately had to pay the taxes.
So, if you inherit money or property from someone’s estate, you might not have to pay income tax on it, depending on the rules in your state and the decisions made by the Tax Court. The Tax Court said the widow doesn’t have to pay taxes on the money she got from her late husband’s estate, because it’s like property that goes directly to her and isn’t part of the estate’s income. However, a different court in Massachusetts said the opposite in a similar case. The two courts don’t seem to have a good reason for disagreeing, and their decisions conflict. In a recent court case, the court decided that a widow’s distribution of assets was subject to certain tax laws. Another court later disagreed with that decision, saying the distribution consisted of estate income. Now, the case is going to a higher court for review. Let’s see what they decide. The Taxpayer Relief Act of 1997 changed the rules for how estates and trusts distribute income. This affected a case called Brigham, where the distribution of a spouse’s elective share of the estate could not be used to avoid paying taxes. The new rule made sure the taxes were shared more evenly among the estate’s beneficiaries. The Deutsch decision provides guidance on elective share provisions in some states, and a new tax law prevents unfair tax burdens on surviving spouses. This will affect 16 states with similar elective share provisions and bring comfort to surviving spouses. The Florida Bar wants its members to understand their responsibilities to the public, make the justice system better, and improve the study of law.
Source: https://www.floridabar.org/the-florida-bar-journal/does-a-spousal-elective-share-carry-out-dni/
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