Simplified Summary of Federal Estate Tax Laws

 
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The Wisdom of Solomon, James Tissot
Simplified Summary of Federal Estate Tax Laws

FILING REQUIREMENTS	FEDERAL
Size of gross estate	$5,120,000 (Year 2012)
	Estates totaling less are exempt from the federal estate tax.
Forms to be filed and due date.	Form 706 (United States Estate and Generation-Skipping Transfer Tax Return) within 9-months after date of death (DOD).
Extension of filing date(s) available	Yes, upon timely application. Does not extend time for payment; interest charged until paid.
	Two six-month extensions generally available.  Only one six-month payment extension available.
PROPERTY INCLUDIBLE IN GROSS ESTATE
Real Estate	At gross fair market value (FMV) of "Highest and best use" at DOD (or alternative valuation date).
Stocks & Bonds	Valued at mean between high and low on date of death (traded securities) or if not available, fair market value.
Mortgages, Notes, Cash	FMV
Miscellaneous Property, such as business interests, antiques, growing crops, vehicles, equipment, personal effects, refunds, etc.	FMV
Life Insurance on Decedent	100% of proceeds, if incidents of ownership held by decedent, irregardless of beneficiary.
Jointly-Owned Property	50% of FMV at DOD into estate of first co-owner to die where owned by spouses as qualifying joint interest property.
	100% of FMV at DOD into estate of first non-spousal co-owner to die except to extent executor can prove contribution to purchase by surviving joint tenant.
Transfers During Decedent's Lifetime	Those transfers which were an unconditional gift of property with a value in excess of $13,000 (Year 2012) and where life right to use or income is retained by donor; includes revocable transfers.
Powers of Appointment	At FMV at DOD if possess power of appointment.
Annuities	Amount of survivor interest valued actuarially.  If from an IRA, Keogh, 401(k), 403(b) or qualified pension/profit-sharing plan; yes, subject to a transition rule (prior to 1983, such amount were fully excludable from estate).
SPECIAL USE VALUATION FOR FARMS AND CLOSELY-HELD BUSINESSES	If specific qualifying conditions are met, real property used on a farm or as woodlands or in a closely-held business may be valued on the basis of its "current" use rather than on the basis of "highest and best use."  Tax benefits realized by the estate must be recaptured if the property passes out of the family or ceases to be used as before within 10 years of the decedent's death.  This procedure is complicated and has a number of possible problems.  This method cannot be used to reduce the value of a federal estate by more than $750,000.
DEDUCTIONS
Funeral Expenses	Yes
Administration Expenses--attorney, executor, appraisal and auctioneer fees, etc.	Yes; may be taken as fiduciary income tax deduction in lieu of being used on estate return.
Debts of Decedent and Mortgages	Yes
Marital Deduction	100% of property left to surviving spouse; includes certain terminable interest, such as life estates, life right to receive income and trust rights, if Q-TIP (Qualified Terminable Interest Property) election made by executor.
Charitable Bequests	Yes
TAX COMPUTATION AND PAYMENT
Credits Against Tax:
Federal Unified Credit	This credit exempts $5,120,000 (Year 2012) of property from taxation; credit is reduced for any taxable lifetime gifts made after 12/31/1976.
Credit for State Death Taxes	Upwardly sliding scale
Credit for Gift Taxes	Full amount of federal gift tax paid on gifts before 1977 for gifted property included in estate.
Previously Taxed Property	Credit against federal estate tax paid on previous estates; sliding scale for up to ten-years.
Due Date	Nine months after DOD.
Extension Available	Yes, upon timely application; interest charged on unpaid tax until paid.
	A special election may be available to estates containing farm property or a closely-held business for installment payments of estate taxes over a 14-year period (interest only 4% on estate tax attributable to first one million dollars of value) for first four years, then ten equal annual payments).
Rates	For taxable estates, marginal rates range from 32% to a maximum of 55%; unified with gift tax since 01/01/1977.
Basis of Property of Heirs	FMV as shown on estate tax return.  Special rule for qualified joint interest property held with spouse--one-half of original basis plus one-half of FMV as shown on estate tax return.