Most states have enacted the Uniform Simultaneous Death Act (the “Act”). The Act provides that if it is not possible to determine which spouse died first, then each spouse will be presumed to have survived the other. Applying this presumption, and assuming a husband with a $8 million estate and wife with a $2 million estate, the estate tax on the husband’s taxable estate (ignoring any state death taxes) would be as follows:
Adjusted Gross Estate $ 8,000,000
Tentative Estate Tax 3,500,800
Less: Estate Tax Credit ( 1,455,800)
Estate Tax $ 2,045,000
If, however, the husband’s trust agreement provided that his wife would be presumed to have survived him in the event of their simultaneous deaths, then the husband’s estate would be entitled to the marital deduction, illustrated as follows:
Husband Wife
Adjusted Gross Estate $ 8,000,000 $ 2,000,000
Marital Deduction (4,500,000)
Taxable Estate 3,500,000 5,500,000
Tentative Estate Tax 1,455,800 2,375,800
Less: Estate Tax Credit (1,455,800) 1,455,800)
Estate Tax $ 0 $ 920,000
Thus, by including a simultaneous death clause that overrides the Act, the estate tax paid by husband and wife would be reduced to $920,000, a substantial savings.
The failure to incorporate the appropriate simultaneous death provision can also have unintended consequences with respect to distribution of assets. In the example, assume husband and wife had presumed that the much younger wife would survive and their primary goal (as set forth in the husband’s trust) was to provide income to their children after husband’s death and to distribute the bulk of their estate to charities (as set forth in the wife’s trust). In the event of their simultaneous deaths, by application of the Act, the children would receive the bulk of their assets directly from the husband. The charities would receive the $2,000,000 from the wife’s trust. Thus, their ultimate goal for distribution of their assets would have been thwarted.