Estate Tax Returns—Not as Scary as They Sound

The Estate Tax is a tax on your right to transfer property at your death.For most individuals who pass away, a final income tax return must be filed with the Internal Revenue Service (IRS) and state (if the particular state also taxes income) to settle any income tax liability that may exist.  The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

While these types of returns are rarely filed today, there are still a number of reasons why it may be beneficial to file such a return with the IRS, even if not necessarily required (though a state estate tax return may be needed in some states).

Estate Tax Return – the facts

Only those who have a gross estate worth $11.58 million (this amount increased to $11.7 million for those who die in 2021).  In addition to those who have estates over $11.58 million in 2020, an estate tax return must also be filed for a deceased individual if the surviving spouse wants or needs to preserve the deceased spouse’s unused exclusion amount (DSUE). 

When calculating the size of an estate, the following items should be included:

  • all property in which the deceased had an interest
  • transfers of property for which the deceased did not receive full compensation or value
  • annuities
  • the includible value of various types of jointly owned property
  • certain life insurance proceeds (depending on the type of policy)
  • community property
  • various other types of property interests

Portability can therefore be an incredibly valuable benefit to a surviving spouse who may have a large estate upon the surviving spouse’s own death that needs to be protected from future estate taxes. 

Who Must File and When?

The person left responsible for the estate tax return is referred to as the executor. This role is typically appointed to by a local court but if this doesn’t happen the IRS considers anyone who is “in actual or constructive possession of any property of the decedent” to be an executor and requires that individual to file the estate tax return if filing one becomes necessary. This can be the case when the property is held in a trust making the trustee the executor. 

Any estate tax return must be filed within nine months of the date of death but a six month extension is possible when filing Form 4768 with the IRS. 

Conclusion

As the executor for the deceased’s estate it can help to hire a professional tax preparer who has experience preparing estate tax returns. Such tax preparation professionals will have the skills, experience, and tools to help this process go much more smoothly. Furthermore, allowing a tax professional to assist you will help ensure that you do not miss any important details before filing and provide important liability protection for you as the executor for possible mistakes made on the return. Call Music City Estate Law in Franklin, TN today and we can help talk you through any issues you may have.

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