Tax Type
Estate Tax
Description
Remainder Interest
Topic
Taxability of Persons and Transactions
Date Issued
06-01-1992
June 1, 1992
Re: Va. Code § 58.1-1821 Application; Inheritance Tax
Dear ****
This will reply to your letter dated February 3, 1992, in which you protest the inheritance tax assessed with respect to a remainder interest created by the will of * * * (the * * * "decedent"), and spent for the care of * * * (the "widow").
FACTS
Upon the death of the decedent in 1971, his will left real estate to the widow for her life, then to other beneficiaries upon her death. Pursuant to another provision of the will, the real estate was sold and the proceeds placed in trust, with the income paid to the widow for her life and the remainder paid to the other beneficiaries upon her death. Although the will did not expressly authorize the corpus of the trust to be invaded for the benefit of the widow, a substantial portion of the corpus was expended for her benefit.
Upon the death of the widow very little was left of the trust corpus. The Department has issued a supplemental assessment of inheritance tax to reflect the portion of the trust corpus spent on her behalf. You protest this assessment, stating that there was only a small amount left in the estate of the widow.
DETERMINATION
An "inheritance tax" is assessed upon the privilege of inheriting property, and is based upon the dollar amount of the property inherited.
The decedent's estate was subject to Virginia's inheritance tax in 1971 based on the value of the property received by each beneficiary. The widow's life estate in the real estate was valued and taxed in 1971, but the tax on the value of the remainder interest in the real estate was postponed until the death of the life tenant, the widow. The inheritance tax on a remainder interest must be based on the value of the property actually received by the recipient at the time of receipt.
In this case the remaindermen named in the will received amounts small enough to be exempt from tax. Because all of the income and a substantial portion of the remainder interest was spent by or on behalf of the widow, she actually received more of the decedent's estate than had been taxed in 1971.
Therefore, the department properly assessed inheritance tax based on the value of the untaxed trust corpus that was withdrawn from the trust and spent on her behalf. The assessment is not based on the income that was spent by or for the widow because the income interest was taxed in 1971. As often happens, the postponed tax on a remainder interest in appreciated property may be more than the tax that would have been paid if the property had been left to one person outright and fully taxed in 1971.
Accordingly, the assessment is correct as made and is now due and payable. You will shortly receive an updated bill reflecting interest accrued to date. The bill should be paid within thirty days to avoid additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner