Preserving and Tranferring Wealth: Pension Plans

The following comprehensive example illustrates the inclusion of pension benefits, use of a life insurance trust, and optimal use of the marital deduction.

Example:

Assume that Ella Estate has the following assets and liabilities, and her will provides for the standard optimal marital and residual trusts:

Life insurance	x	$ 300,000
Qualified pension plan benefits	x	500,000
House	x	400,000
Other assets	x	1,300,000
Total	x	2,500,000
Less:	x	x
Debts	$ 75,000	x
Administrative expenses	__25,000	__(100,000)
Net assets	x	$ 2,400,000

If Ella Estate assigned the life insurance to an irrevocable trust as described in Chapter 3 and named her husband as the beneficiary of the qualified plan,
her taxable estate in 2006 would be computed as follows:

Qualified pension plan benefits	x	$ 500,000
House	x	400,000
Other assets	x	1,300,000
Total assets	x	$ 2,200,000
Less:	x	x
Debts	$ 75,000	x
Administrative expenses	25,000	$ (100,000)
Adjusted gross estate	x	2,100,000
Optimal marital deduction	x	__1,100,000
Taxable estate	x	$ 1,000,000
Estate tax after unified credit	x	zero

In this case, the maximum allowable marital deduction would be $2,100,000. However, from a tax viewpoint, the taxable estate of the first spouse to die should not be reduced below $1,000,000, the applicable exclusion amount.