Legal Definitions - tax-apportionment clause

A tax-apportionment clause is a specific instruction included within a person's will that dictates how the various taxes related to their estate (such as estate taxes or inheritance taxes) should be divided and paid among the beneficiaries or from specific assets. Without such a clause, state law typically determines how these taxes are allocated, which might not align with the deceased person's wishes.

• Example 1: Protecting Specific Gifts

  Imagine a will that leaves a beloved family cabin to one grandchild and a substantial investment portfolio to another. The will includes a tax-apportionment clause stating that "all estate taxes shall be paid from the residuary estate," which is the portion of the estate remaining after all specific gifts and debts are settled. This means that the cabin and the investment portfolio will be passed to the grandchildren without being reduced by their share of the estate taxes.

  This illustrates a tax-apportionment clause because it's a clear directive within the will about how the estate taxes are to be paid – specifically, from the residuary estate – thereby protecting other designated gifts from being diminished by tax obligations.

• Example 2: Proportional Tax Burden

  Consider a person whose will leaves their valuable antique car collection to their daughter and a significant sum of cash to their son. The will includes a clause stating that "all estate and inheritance taxes shall be borne proportionally by each beneficiary based on the value of the assets they receive."

  This is a tax-apportionment clause because it explicitly directs that the tax burden is not to be paid from a single source, but rather divided among the beneficiaries. The daughter would pay a portion of the taxes corresponding to the value of the car collection, and the son would pay a portion corresponding to the cash, ensuring a fair distribution of the tax burden relative to what each receives.

• Example 3: Ensuring Full Charitable Bequests

  An individual creates a will that leaves a substantial bequest of $500,000 to a specific animal welfare charity and the remainder of their estate to their nieces and nephews. The will contains a clause stating, "All estate taxes attributable to the charitable bequest shall be paid from the non-charitable portion of my estate."

  This demonstrates a tax-apportionment clause by specifying that the tax burden associated with a particular gift (the charitable bequest) should not fall on that gift itself. Instead, it directs that these taxes be covered by other parts of the estate, ensuring the charity receives the full intended $500,000 without reduction for taxes.