Preparing the Estate Tax Return, Part 2

• 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: 269-293

CHAPTER 17 Preparing the Estate TaxReturn, Part 2 269

Chapter17

Preparing the Estate

TaxReturn, Part 2

For many, preparing the Form 706, United States Estate (and Generation-

Skipping Transfer) Tax Return, is the sterling achievement in the quest to

competently administer an estate. After all, in most instances, the return is a

fairly straightforward accounting of what the decedent owned and owed when he

or she died. (Chapter 16 helps you with lling out the basics of Form 706.)

However, if you’re not completely condent after we walk through the schedules

in this chapter, and if you nd yourself faced with some of the more complex

schedules, which we don’t deal with at length here, we suggest that you consult

with either an attorney or an accountant who’s knowledgeable about estate tax

matters for assistance.

In this chapter, we give you an in-depth look at the schedules you’re likely to take

a crack at completing yourself and a heads-up on the schedules that address more

complex areas of tax law.

Tackling the Most Common Schedules

Form 706 has a schedule for every occasion, but only rare estates have property

and/or expenses diverse enough to require you to prepare every schedule. Basically,

schedules are the places you list the individual assets, broken down by type of

IN THIS CHAPTER

»

Filling out the most common

Form706 schedules

»

Seeking help for all the rest

270 PART 4 Paying the Taxes

asset, such as Schedule A, Real Estate, and the dierent types of deductions, such

as Schedule K, Debts of the Decedent. Still, every estate that’s required to le a

Form 706 must complete at least some schedules. In the following sections, we

guide you through the most commonly prepared schedules: the ones that show

the types of property and the sorts of expenses you regularly nd in even the

smallest estates which are required to le.

Focusing on real estate: Schedule A

If the probate estate contains any real estate or interest in real estate, complete

and le Schedule A: Real Estate. Include all real estate the decedent owned in his

or her individual name or as a tenant in common. When title is held as tenants in

common, each tenant’s interest in the property is separate from the interests of

the other tenants in common and passes to his or her heirs upon death, as opposed

to a joint tenancy with right of survivorship or a tenancy by the entirety, where title

passes automatically to the surviving joint tenants.

For each piece of real estate, include the following information about the property

on Schedule A:

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Land area.

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Any improvements such as house and landscaping.

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Street address.

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The legal description (the description on the deed).

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Any accrued rent (rent earned prior to the decedent’s death but not paid until

after the date of death).

»

The appraisal or other basis for valuing the property. Describe the appraisal

on Schedule A and attach a copy as an exhibit at the end of the return. If the

assessed value reects the market value in the area, the IRS may accept the

assessed value in lieu of an appraisal. Attach a copy of the tax assessment

closest to the decedent’s date of death as an exhibit. If the property is sold

shortly after the decedent’s death, the selling price may be used. The IRS

doesn’t have to accept a sale price as the fair market value price, especially if

the property was purchased by a related party or pursuant to an option to

purchase. Attach copies of the sales contract and closing statement as

exhibits.

If the decedent owned a fractional interest in real estate that you or your appraiser

are discounting, attach as an exhibit a statement explaining the discount taken on

the interest (due, for instance, to lack of control or lack of marketability), and be

sure that the appraiser can defend the discount if the return is audited.