Estate Tax Deduction on Annuity Distributions

[AbeEz]

Two Questions On the Same Section of Publication 575

Publication 575, Page 38, states the following: "If the decedent died before the annuity starting date of a deferred annuity contract and you receive a death benefit under that contract, the amount you receive (either in a lump sum or as periodic payments) in excess of the decedent's cost is included in your gross income as income in respect of a decedent for which you may be able to claim an estate tax deduction.

I am assuming that the reason the publication stipulates that if the decedent died before the starting date of a deferred annuity contract, is that if because they died after, the distributions received would be taxable to the decedents estate and would not be considered IRD. However, the estate tax paid on the distributions received after the death of the decedent would still be able to be deducted on Schedule A.

Is this assumption correct?

In addition, the publication states "You may be entitled to a deduction for estate tax if you receive amounts included in your income as income in respect of a decedent under a joint and survivor annuity that was included in the decedent's estate. You can deduct the part of the total estate tax that was based on the annuity, provided that the decedent died after his or her annuity starting date. (For details, see Regulations section 1.691(d)-1.) Deduct it in equal amounts over your remaining life expectancy.

In this paragraph it is stipulated that the decedent died after the annuity starting date, is the reason for this that if they died before the starting date, the distributions would be considered made out to the survivor, as they are a joint owner of the account?

Is this assumption correct?

Thanks in Advance.

[SaraEA]

Unless this is a large estate the issue is probably moot.  Not many clients have taxable estates in excess of $11.4m (double that for MFJ).

[AbeEz]

Is that even for estates when decedent died before 2018? I was under the impression that it only applies to deaths that took place in 2018 and onward?

[SaraEA]

It has been at $5m plus since 2010.

[jklcpa]

I suspect that Abe may not be in our business and should hire a professional.  Also, not in CA.