Preparing the Estate Tax Return, Part 1

• Author: Margaret A. Munro, Kathryn A. Murphy
• Profession: Has more than 30 years' experience in trusts, estates, family tax, and small businesses/Attorney with more than 20 years' experience administering estates and trusts and preparing estate and gift tax returns
• Pages: 247-267

CHAPTER 16 Preparing the Estate TaxReturn, Part 1 247

Chapter16

Preparing the Estate

TaxReturn, Part 1

“

Nothing’s certain in life apart from death and taxes.” Ben Franklin said it,

and it’s generally true. Although death is unfortunately inevitable, the

federal estate tax isn’t if the decedent’s estate (the property owned by the

deceased person on his or her date of death) is small enough. For decedents

passing away in 2013, the amount exempt from federal estate tax is $5.25 million

($5 million indexed annually for ination).

The federal estate tax, sometimes mistakenly referred to as the death tax, is a tax

on the value of all the decedent’s property at the date of death, minus any amounts

owed by the decedent but unpaid at that time, funeral costs, and the costs of

administering the estate. It’s not a tax on a share received by any particular

beneciary, and no beneciary pays any gift or estate tax on what he or she

receives. The executor or administrator pays any estate tax owed from estate

assets nine months after the decedent’s date of death.

In this chapter, you nd out how to decide whether you must le a Form 706,

United States Estate (and Generation-Skipping Transfer) Tax Return for the

estate, as well as whether any tax is due. With the information located here, you

can prepare the opening pages of the 706, make the appropriate elections for the

estate, compute the tax, and le the return.

IN THIS CHAPTER

»

Determining whether your estate

needs to le

»

Filling out pages 1–4 of the estate tax

return

»

Deciding which elections to take

»

Taking the nal steps after you’ve

led the return

248 PART 4 Paying the Taxes

Figuring Out Which Estates Must File

The good news is that making the decision about which estates must le is easy.

Uncle Sam already made the decision; most estates need not le an estate tax

return at all. Read on to see whether you can dodge this particular bullet or need

to start lling out the forms.

Who must le

The IRS estimates that only a small number of estates are required to le. So how

do you gure out whether the estate you’re administering falls into that category?

The answer depends on the size of the gross estate, or the total value of everything

the decedent owned as of his or her date of death, and the year in which he or

shedied. If, for example, you’re administering an estate for a decedent who died

in 2013, you don’t need to worry unless the gross estate is worth more than

$5.25million. That exclusion amount is adjusted annually for ination.

WHO MAY WANT TO FILE: PEOPLE WHO

QUALIFY FOR THE DECEASED SPOUSAL

UNUSED EXCLUSION (DSUE)

As of January 1, 2011, one spouse can elect to transfer any unused exclusion amount to

the surviving spouse. So, if your decedent doesn’t have a taxable estate but the surviv-

ing spouse has or may have a taxable estate, you’ll want to le a 706 for your decedent.

The amount transferred to the surviving spouse is called the deceased spousal unused

exclusion (DSUE).

As executor, you can elect transfer, or portability, of the unused exclusion to the dece-

dent’s surviving spouse, but you must do so on a “completely and properly prepared”

and timely led estate tax return. The surviving spouse can later apply the DUSE amount

received from his or her last deceased spouse against his or her own subsequent life-

time gifts and transfers at death. The IRS recognizes that preparing and ling a 706 when

you wouldn’t otherwise have to is a burden and has said that, in valuing the property

forinclusion on a return which is being led solely to elect the transfer of the DSUE, the

executor may estimate the total value of the gross estate based on a determination

made “in good faith” and with “due diligence” regarding the value of all the assets includ-

ible in the gross estate.