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F I S C A L I M P A C T R E P O R T

SPONSOR Wirth

DATE TYPED 02/11/05 HB 829

SHORT TITLE Uniform Estate Tax Apportionment Act

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 829 enacts a new section of the Uniform Probate Code and enacts the Uniform Estate

Tax Apportionment Act. The bill provides procedures for governing apportionment of estate tax

among beneficiaries and governs the liability of nonprobate transferees for creditor claims and

statutory allowances.

Significant Issues

The National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Uni-

form Estate Tax Apportionment Act for proposed adoption on all the states. The NCCUSL is an

organization of qualified individuals appointed by state governments to research, draft and pro-

mote enactment of uniform state laws in areas where uniformity is desirable and practical.

The AOC provides a helpful explanation of the bill:

Uniform Probate Code (UPC)

House Bill 829 -- Page 2

Section 45-6-102: House Bill 829 enacts an amendment to Section 6 of the UPC that is a

draft from the NCCUSL 1998 annual meeting. The specific amendment governs the li-

ability of nonprobate transferees for creditor claims and statutory allowances. In the

words of the commissioners:

This section extends protections for family exemption beneficiaries and creditors

of decedents to new categories of non-probate transferees of decedents. However,

unlike conventional and cumbersome probate protections, the remedy contem-

plated by this section is to enforce a duty placed on nonprobate transferees to con-

tribute as necessary to satisfy family exemptions and duly allowed creditors'

claims remaining unpaid because of inadequate probate estate values. The maxi-

mum liability for a single nonprobate transferee is the value of the transfer. Val-

ues are determined under subsection (b) as of the time when the benefits are "re-

ceived or controlled by the transferee." This would be the date of the decedent's

death for nonprobate transfers via a revocable trust, and date of receipt for other

nonprobate transfers. Two or more transferees are severally liable for proportions

of the liability based on the value of transfers received by each.

Uniform Estate Tax Apportionment Act (UETAA)

The Act provides procedures governing the apportionment of estate tax among benefici-

aries. In summarizing the UETAA, the commissioners noted that:

If a state does not have a statutory apportionment law, the burden of the estate

taxes generally will fall on residuary beneficiaries of the probate estate. This

means that recipients of many types of nonprobate assets (such as beneficiaries of

revocable trusts and surviving joint tenants) may be exonerated from paying a

portion of the tax. Also, it generates a risk that residual gifts to the spouse or a

charity may result in a smaller deduction and a larger tax. A number of states have

adopted legislation apportioning the burden of estates taxes among the beneficiar-

ies.

The current Act was approved and recommended for enactment in all states at the annual meet-

ing of the National Conference of Commissioners on Uniform State Laws in August 2003. Sec-

tions of the Act cover the following:

•

Apportionment by will or other dispositive instrument

•

Statutory apportionment of estate taxes

•

Credits and deferrals

•

Insulated property and the advancement of tax

•

Apportionment and recapture of special elective benefits

•

Securing payment of estate tax from property in possession of fiduciary

•

Collection of estate tax by fiduciary

•

Right of reimbursement

•

Action to determine or enforce act

•

Uniformity of application and construction

•

Severability

•

Applicability

House Bill 829 -- Page 3

Under House Bill 829, the UETAA does not apply to the estate of a decedent who dies on

or within three years after the effective date of the Act, nor to the estate of a decedent

who dies more than three years after the effective date of the Act if the decedent continu-

ously lacked testamentary capacity from the expiration of the three-year period until the

date of death. The effective date of the Act is July 1, 2005.

TRD writes: “[The UETAA] does not apply to inheritance tax (a tax on the beneficiaries, rather

than on the estate). It replaces current law with far more intricate, detailed rules on apportion-

ment, leaving much less latitude to a probate judge’s “sense of fair play.” Although the proposed

Act changes the apportionment of tax liability within an estate, it does not have a major impact

on total state tax liabilities.”

FISCAL IMPLICATIONS

The AOC indicates that the courts will be fiscally impacted as a result of new proceedings avail-

able under the UPC and UETAA.

TRD indicates that the bill will have not significant impact on the estate taxes collected by the

state.

EF/lg