Filing Requirements: An
IRS form 706 federal estate tax return is required if the gross federal estate
valued on the date of death, plus
taxable lifetime gifts, exceeds the exclusion amount for the year of death. Note:
If decedent made taxable gifts between 9/8/76 and 1/1/77, a federal
estate tax return may
be required if the gross estate and taxable lifetime gifts exceed $620,000
(for 1999) or $645,000 (for 2000). See "Which Estates Must File (an
IRS form 706 federal estate tax return)"
in the IRS Form 706 instructions. We have estate tax software to prepare
the IRS form 706 federal estate tax return. Contact us!
Filing Deadline: You must file IRS
form 706 within 9 months of the decedent's death.
Extension Deadline & Forms: Form
4768 extends the deadline for filing IRS form 706 for 6 months.
Penalties for filing IRS form 706 late: Late filing penalty of 5%
of the federal estate tax per month up to 25% of the federal estate tax in addition to any late payment penalties and
interest.
Federal Estate Tax Rates: See Estate
Tax Rates.
Estimated Federal Estate Tax Requirements: None
- the federal estate tax
is due with the IRS form 706 federal estate tax return.
Gross Federal Estate Of A Decedent
The gross federal estate includes all property
owned by the decedent at death, wherever situated; including cash,
investments, homesteads, real estate, vehicles, personal property,
retirement assets, tax-exempt assets, and business interests. The gross
federal estate includes assets passing through probate and assets inherited
directly by joint owners or beneficiaries. The gross federal estate includes
assets which will not be taxed because they qualify for the marital or
charitable deduction.
Gross federal estate also includes:
• Life insurance on decedent’s life if
proceeds are paid to the estate. [IRC §2042]
• Life insurance on decedent’s life if proceeds are paid to a
beneficiary other than the estate and (1) the decedent owned the policy
at death, (2) the decedent transferred the policy before death but had
any incidents of ownership within three years of death, or (3) the
beneficiary is legally required to use the proceeds to pay debts or taxes
of the estate. [IRC §2042 and §2035]
• Life insurance on another. Replacement value of policies owned by
decedent.
• Survivor annuities and annuity refunds. [IRC §2039]
• Property over which decedent had a general power of appointment. [IRC
§2041]
• Tenancy in common—value of decedent’s share.
• Joint tenancies generally—value of entire property
unless survivors can prove they provided consideration for their shares.
[IRC §2040(a)]
• Joint interests between spouses—one-half the value of community
property and property owned as joint tenants or tenants by the entirety.
[IRC §2040(b)]
Retained Interests: If the decedent
transferred a partial interest in property and retained the remaining
interest, the value of the entire property is included in the gross
federal estate.
Examples:
– Life Estates: Decedent retained
a right to income, possession, or enjoyment or the right to designate who
receives the income, possession or enjoyment. [IRC §2036]
– Reversionary Interest: Decedent
transferred a life estate and retained a remainder interest which passed
to a beneficiary because of decedent’s death. [IRC §2037]
– Revocable Transfers: Decedent
transferred property but retained the power to change its enjoyment. [IRC
§2038]
Three-Year Rule: If decedent gifted
certain property or relinquished a retained power over property within
three years of death, its value must still be included in the gross
federal estate
even though decedent had no interest at the time of death. [IRC §2035]
Transfers subject to the three-year rule:
• Gift tax on gifts made within three
years of death.
• Life insurance policies on the decedent’s life.
• Retained life estates and reversions. [IRC §2036 and §2037]
• Revocable transfers under IRC §2038, except: Transfers from a
decedent’s revocable trust are considered to be made directly by the
decedent. Gifts from revocable trusts within three years of death are not
included in the gross federal estate. If the decedent relinquished power to revoke
a transfer in trust any time prior to death, the property is not included
in the gross federal estate. A revocable trust is a grantor-type trust under IRC
§676 [IRC §2035(e)].
Powers of Appointment [IRC §2041]: A
power of appointment is created when one person (the donor) gives another
person (the donee) the right to determine the disposition of the donor’s
property. The value of property subject to a general power of appointment
must be included in the donee’s gross federal estate. A general power allows the
donee to transfer the donor’s property to the donee, the donee’s
estate, or the donee’s creditors. A special power generally only allows
the donee to apportion property among beneficiaries selected by the donor.
Because the donee cannot take the property personally or pass it along to
beneficiaries that he/she selects, the value of property subject to a
special power is not included in the donee’s gross estate.
