Estate and Gift Tax - Consistent Basis Reporting Between Estate and Person Acquiring Property from Decedent

Estate and Gift Tax - Consistent Basis Reporting Between Estate and Person Acquiring Property from Decedent

Last year’s “Highway Bill”, Regarding Beneficiaries Acquiring Property From a Decedent, requires certain estates to file Form 8971 to ensure consistent basis reporting among estates and their beneficiaries.

On February 29, 2016, the IRS plans to begin accepting basis information with respect to property acquired from decedents as required by H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law on July 31, 2015.

The law created IRC §6035, which requires the executor of an estate required to file an estate tax return to also provide certain statements to the IRS and to beneficiaries receiving inherited property. This also applies to IRC §6018(b) filers.

The law also adds IRC §1014(f), which requires consistent basis reporting between an estate and the beneficiary receiving property from a decedent.

These changes apply to any estate tax return filed, and to property with respect to which an estate tax return is filed, after July 31, 2015.

The IRS is working steadily to identify and define the policy, procedural, and information system changes necessary to meet the requirements of the new law. Please see Notice 2015-57 for important information.

Source: irs.gov

Estate Planning Executor Checklist

Executor/Administrator/Successor Trustee's Responsibilities and Checklist

1. ___ Locate the last will and/or trust document(s)
2. ___ Carry out written instructions of the decedent relating to his/her body, funeral, and burial arrangements
3. ___ Locate all important papers and information of decedent
4. ___ Change mailing address(es) for statements (bank, investment, etc.)
5. ___ If necessary, select an attorney to handle the estate
6. ___ Select a tax professional to prepare the required tax returns (1040, 1041, 706, and state returns)
7. ___ Notify heirs of appointment of attorney
8. ___ Notify IRS and state of your fiduciary relationship as executor, trustee, or administrator
9. ___ Locate all assets (cash, real estate, securities, collectibles, jewelry, life insurance, safe deposit box, etc.)
10. ___ Take possession of estate property
11. ___ Apply for tax identification number for estate/trust income tax returns (TIN)
12. ___ Transfer the decedent's accounts into account(s) for the estate using new TIN
13. ___ Pay expenses for last illness, funeral and burial expenses, and other debts
14. ___ Have real and personal property appraised as of the date of death
15. ___ Have any other assets appraised or valued as of the date of death
16. ___ Notify life insurance companies
17. ___ Notify trustees of retirement accounts
18. ___ Notify Social Security
19. ___ Obtain a list of debts of the decedent (mortgages, credit cards, auto loans, etc.)
20. ___ Arrange for family's immediate living expenses
21. ___ From the estate, raise cash that will be required to pay estate taxes, administration expenses, and other costs of settling the estate, if any 
22. ___ Decide which assets need to be sold, if any
23. ___ Satisfy charitable pledges listed in the decedent's will
24. ___ Locate last 3 years of income tax returns of decedent
25. ___ If a business is involved, locate comparative financial statements for any closely held business
26. ___ Locate all gift tax returns filed by decedent, if any
27. ___ Decide where to deduct the estate's administration expenses (Form 706 or 1040 or 1041)
28. ___ File final individual income tax returns by the due date (Form 1040 and state)
29. ___ File the estate income tax returns by the due date (Form 1041 and state)
30. ___ Consider special valuation on farm and business real estate
31. ___ Consider QTIP election
32. ___ Within 9 months of the date of death, file federal estate tax return and related state forms, if required (Form 706 and state)
33. ___ Safeguard any assets that will be distributed to minors
34. ___ Prepare a statement detailing the distribution of assets
35. ___ Prepare an accounting of both income and expenses of the estate
36. ___ Distribute assets to heirs and beneficiaries

List of Basic Items for Executor to Obtain

List of Basic Items for Executor to Obtain
The following is a basic list of items for the executor to obtain to enable the practitioner to prepare the estate tax return.  Depending on the size of the estate and other factors, other items may be necessary:

	1.  Last Will & Testament.
	2.  Inventory of  personal effects.
	3.  List of all bank accounts, including savings accounts.
	4.  List of investments.
	5.  List of pension funds.
	6.  Copies of life insurance policies.
	7.  Legal description of all real estate, copies of deeds, promissory notes and deeds of trust.
	8.  Legal description of mineral interests and amount of any income being received from such interests.
	9.  Legal description of property located in other counties or states.
	10.  Gift tax returns and list of lifetime gifts by the decedent.
	11.  Copies of all trust agreements where the decedent was a grantor, trustee or beneficiary.
	12.  Copies of income tax returns for at least the last three years.
	13.  Schedule K-1s from partnerships and S corporations for at least the last three years.
	14.  Copy of homeowner’s insurance.
	15.  List of all administration expenses including funeral expenses.
	16.  Names, addresses, ages, relationship and social security number of all beneficiaries.
*****	17.  Names and addresses of all professional advisors of decedent.

Source:  Practitioners Publishing House, Fort Worth, TX

Steps When a Loved One Dies

Steps When a Loved One Dies

When a Loved One Passes Away

The experience of facing the loss of someone close is always sad, somewhat frightening, and quite confusing. For the person who must also deal with the financial and legal implications, it carries some heavy responsibilities as well. To assist in this area, here is an outline of what should be done from a tax and financial standpoint in order to settle the affairs of one who has passed away. While some of the issues are hard to face, it is for the good of all concerned to deal with them openly.

Overview of the Process

It's best to initially look at the whole picture. The first, and saddest decisions come early on at the hospital shortly after death. The attending doctor has the responsibility to sign the death certificate, and decide whether an autopsy is required. For most states, unless the death is due to violence, or suspicious, unexplained causes, no autopsy is performed. However, there may be instances where you would want an autopsy done in case the cause of death may relate to an hereditary issue. If so, your time to make this decision is limited. Similarly, if the deceased was an organ donor, time is of the essence.

Next, decisions must be made regarding funeral arrangements. It is important to find out if the deceased had any specific wishes in this regard, and to coordinate with family and friends. Following this, a number of financial and legal decisions will be required.

The estate of the deceased must be settled. That is, remaining net assets must be transferred to legal heirs.  This is called the probate process. In conjunction with this, various federal and state tax returns may be required to be filed on behalf of the deceased.

Succession ("Inheritance") Tax Returns may be required as well as a final Individual Income Tax Return.  If the deceased has an estate that is yielding income while it is still being probated, a Fiduciary Income Tax Return may also be required.

Lastly, a so-called Final Accounting is done at the end to verify with the legal authorities that all the net assets have been distributed properly after all allowable expenses have been paid.

Within some of these steps are important issues that should be discussed in detail. Since the courts hold the executor of the estate responsible for proper and timely filing of various documents, it is essential to have a good, working knowledge of these various aspects, and due dates involved. Included at the end of this text are several checklists that identify in detail what should be done, and what steps must be taken in sequential order for tax purposes.

Get Copies of Death Certificate

You will need to submit copies of death certificates to various places, so make sure you have a number of copies. These are provided at either the hospital, or, more commonly, by the funeral home. The cost for extra copies averages $2-8 dollars each. To claim insurance benefits, employer benefits, transfer of assets, etc., requires furnishing a copy of a death certificate.

Find the Will and Safe Deposit Box

Assuming you know that a Will was made out, it is important to find it as soon as you can since it may provide many important guidelines. It may contain burial and funeral instructions; it certainly identifies the person who will serve as the executor–the one who handles all the legal and financial matters after death. It also may list locations of other important papers such as life insurance policies, and safe deposit boxes. Conversely (and this is a mistake many people make) the Will may be inside the safe deposit box, so you will need legal authority to open the box. If you can't find the safe deposit box, you can do a local search of the banks with the help of a lawyer, and you can also contact the American Safe Depository Association in Indiana. They have lists for all participating banks.

What if you can't readily find the Will? Try asking friends or relatives if they knew which lawyer was used by the deceased. Also, look through address books, file cabinets, checkbooks, or storage facilities to search for clues.

How about someone who dies without a Will? This makes things more complicated. Unfortunately, approximately 60% of all Americans don't leave a Will, according to today's statistics. In effect, they die "Intestate." If this is the case, the courts will handle the matter based on the individual state law.  They will appoint an executor, and all net assets from the estate will be distributed according to state laws, not necessarily the way the deceased may have wished.

Contact Professional Advisors

Getting a lawyer to handle the probate and estate process is an early priority. Most people use the same lawyer who handled the setting up of the Will. But you are allowed to use any attorney with whom you feel comfortable.

You should also contact the professional who will handle the filing of the various tax returns. A mistake most people make is assuming the lawyer handles everything in the estate process. This is rare. While most lawyers will handle filing the Succession Tax Returns, they do not usually handle the Income Tax Returns, or the Fiduciary Tax Returns. These must be filed on a timely basis. So the tax accountant should be contacted early on in order that a coordinated effort can be made with the attorney.

Begin the Probate Process: Gathering Information

This is the complicated job of recording all assets and debts of the deceased, and all the pertinent financial records to comply with the Will, the tax laws, and the courts.

The first step is to locate all assets and debts. As we mentioned, sometimes the Will contains most of this information. But, even if it is listed, don't assume it is up to date. If the Will had been made out years ago, many changes may have occurred to increase or decrease the assets and debts of the deceased. You must make a reasonable effort to do a preliminary inventory of the estate within specified time periods in accordance with state laws. Finding this information can be tedious. The information you will need comes from many sources, including life insurance policies, bank accounts, brokerage accounts, safe deposit boxes, stock certificates, bonds, real estate contracts, vehicle registrations, and old tax returns, to name a few. You should also check to see if there were any ties to various fraternal, military, or social organizations.

This information is gathered, and a preliminary inventory is made which is used to begin preparing the Succession Tax Returns, and to account to the Probate court. The lawyer and/or tax accountant can assist in organizing these items.

The second step is to arrange for the payment of various benefits that may be available upon death of a person. Life insurance benefits, Veteran's benefits, Social Security, IRA's, Keogh's, SEP's, and other employee-related benefits are the main ones. Proper tax planning when it comes to the distribution of these funds (especially IRA's) can be critical to the recipients so definitely get tax advice here before you make the payments.

It's important to be thorough here because these benefits are not automatic; you must apply for them by providing proof of death, and proof of the beneficiaries.

Life insurance is usually the first to handle since the benefits can be distributed to the heirs within 10 days of notification. Life insurance proceeds do not have to go through probate (although they are subject to Estate taxes). Some tips here: Check with the employer of the deceased for any group life insurance.  More than half of all life insurance comes from group plans. Life insurance policies could be in the safe deposit box.  Coverage may also come from associations, fraternal organizations, Veterans Administration, credit card supplemental insurance (from death related to travel or accident), bank SBLI insurance, mortgage insurance, some medical insurance policies, credit unions, and others. If in doubt, go through the deceased's checkbook for checks written out to life insurance companies or groups. You can also check with the American Council of Life Insurance in Washington DC to see if any participating companies are listed on behalf of the deceased.

Employee benefits play an important role. Did the person have any pension, profit sharing, stock options, or death benefits payouts available? Does worker's compensation figure in if the person died from work-related injuries? If in doubt, ask for assistance. Most companies have a person or department that can help you in this area. Call them right away.

Military benefits may be available for deceased veterans. These benefits can be in the form of life insurance, burial insurance, pension benefits to survivors, reimbursement for medical bills, or a lump sum death benefit. Your local VA office can help, but you'll need to provide information on the service record. Look for discharge papers to get this information.

Social security benefits can be sizable if the deceased left a spouse with minor children. There is also a small death benefit for funeral expenses. You can get help here from the local Social Security Administration office. If the deceased had been receiving social security or pension checks up until death, keep in mind that any retirement checks of this nature that continue after death may have to be returned. The Social Security Administration especially does not immediately know about a person's death, so there can be a significant lag. It's a good idea to contact them immediately to avoid this hassle.

Probate and Inheritance Process

There are two related issues with which to deal. First, you must probate the estate. That is, implement the transfer of assets from the title of the deceased to the heirs. This involves a series of steps designed to finalize this transfer. The death must be stated in an "open forum" which customarily means it is listed in the local papers, and, in some cases, sent to individuals directly (usually potential heirs and beneficiaries).

All known debts are paid out of the estate, and various legal documents (including a final accounting) are recorded with the courts to allow the assets from the estate to pass on to the beneficiaries. This process can take as little as one month, or many years depending on the size of the estate, if it is being challenged, if the deceased died without a Will, and the backlog in the Probate Court calendar.

Inheritance taxes are a separate function. While they share a common denominator in that the value of the deceased's estate must be established in order to institute the process, the similarities end here. The Inheritance, or Succession Tax function is designed to establish how much tax, if any, is owed to the federal and state governments.

The largest portion of potential estate taxes usually goes to the federal government. In effect, it is a graduated rate tax that is due on the net value of the estate. Due to various federal credits, if the taxable estate is less than $5,000,000 (indexed for inflation), ($10 million for family estates) there probably will be no federal tax. Nor is there usually any tax if the entire estate is left to a surviving spouse who is a U.S. citizen. Beyond that, however, there is a federal marginal tax rate which can reach as high as 40% of the estate.  Normally, this tax is due within nine months from date of death.  There are certain exceptions to this deadline and exemption amount if the deceased had a business, or owned certain types of realty.  State inheritance taxes can vary widely from the federal laws. Your lawyer/accountant team is usually retained to handle these aspects for you.

Winding-Up the Process

Once the Inheritance taxes have been paid, and the probate process has been completed, the task is done.  As you can see, it can be quite complicated. The more organized the estate is before death, the easier–and less expensive–the process becomes. Moral of the story: Get your own affairs in order before you die to save your surviving family and friends untold amounts of wasted time and frustration.

Steps to Take for Tax Purposes 

1. Contact the lawyer, tax accountant, and other appropriate financial advisors you will be using to help with the estate.

2. Begin the inventory process of recording assets, their values at date of death, and any debts/liabilities the deceased had.

3. Apply for federal and state tax identification numbers for the estate, if needed.

4. Prepare federal and state Succession/Inheritance tax returns.

5. Handle accounting reports for Probate.

6. Prepare outstanding Individual income tax returns for deceased.

7. Prepare Fiduciary income tax returns for estate.

8. Do final accounting to close estate.

 Summary of General Steps to Take

• Make necessary hospital decisions shortly after death. Autopsy or not, picking up personal belongings, donating organs, and getting copies of death certificate.

• Locate Will and safe deposit box, contact attorney and other appropriate financial advisors.

• Arrange for Funeral/Memorial, notify friends and family.

• Contact decedent's employer for details on death benefits.

• Locate life insurance policies, apply for proceeds.

• Arrange for continuation of payment of decedent's bills.

• Notify Social Security, Veteran's Administration, and other associations for possible benefits.

• If required, notify Post Office for address change.

• Contact various financial organizations of deceased: banks, mortgage holders, retirement plans such as IRA's, Keogh's, brokers, mutual funds, people who owed money to the deceased, insurance companies holding auto, fire, medical insurance policies, DMV, credit card companies.

• Arrange for miscellaneous change and/or shut off of service agreements:

Utility companies, oil companies, newspaper and periodical subscriptions, clubs, cable TV.

• Follow up on various tax matters as previously listed.

• Dispose of decedent's assets, and belongings according to Will. If donating clothing, furniture, etc. to "goodwill type" organization, provide a detailed list and get a receipt for tax deduction purposes.

• Re-evaluate your own situation regarding your Will, and information available to survivors in event of your sudden demise. Make it easier for your survivors than it was for you.

Reference: Practice Enhancers, Able & Co.

Estate Planning Primer

Estate Planning Primer
Your Potential Federal Estate Tax Liability
The purpose of the accompanying analysis is give you an idea of your potential federal estate tax liability based on your current "net worth." The effects of any state succession or inheritance taxes will not be taken into account.

The federal estate tax is based on the net difference between your various taxable assets and your allowable debts/liabilities at date of death.  In effect, this is a form of "net worth" calculation.  Under the current rates, this graduated tax can reach as high as 35% for certain size estates!  Thus, calculating your potential estate tax–and planning how to reduce it–shouldn't be taken lightly.

Under the present laws, married individuals can leave an unlimited estate to their surviving spouse, assuming that spouse is a US citizen.  No tax problem here.  But it is at other levels where the tax liability can come into play.  That is, when the surviving spouse dies, or if there is no qualified spouse, or if the estate exceeds a value of  (higher if the estate involves a family-owned business.)  At this point, federal estate taxes–like a shark–can come charging into the picture to take huge bites out of your assets.

A brief rundown on some basic techniques that people use to do estate tax planning is enclosed.  When it comes to estate tax planning it's always a good idea to know two things.  One, where you stand tax-wise; that is, how much you have potentially to lose.  Two, what tax-saving avenues are open to you to cut down on these taxes.  That's because: Three, if you don't take advantage of these tax-saving techniques before certain events occur, you lose the opportunity.  So please review the accompanying text in addition to the estimated estate tax calculation, based on your situation.

Basics Of Estate Planning
Most people assume that only the wealthy need estate tax planning.  This is not so, because it doesn't take a great deal to reach the taxable levels; not when you start adding up all the components the IRS uses to determine what's taxable.  Keep in mind that such items as life insurance proceeds, annuities, value of your company retirement plan, and real estate are only some of the taxable components.  Also, when the estate tax does kick in, it starts furiously, with an opening 2012 marginal tax bracket of 35% after your unified credit exemption.

But an estate plan also fulfills other important functions.  Properly done, it can also insure that your remaining assets at death go exactly as you wish, to exactly whom you want, in as little time as possible, and at the smallest cost.  Failure on your part to do the proper–and legal–estate planning will mean that the courts will decide what to do with your assets, and who will handle it.

So, basically good estate planning will do all of the following: Cut federal and state taxes, minimize red tape for the transition, allow you to enjoy your money while you are still alive, and make it easy for your survivors to handle your estate after you pass on.

Normally, most people do not do their own estate planning.  They use lawyers, tax accountants, financial advisors and planners.  But, the biggest mistake made by a majority of people is that they don't even know enough to decide if they need help, what kind of help to get, when to get it, and what the trade-offs will be for all this planning.  In fact, to most people, all this estate planning is a confusing, scary area (no one likes to even think about dying, much less plan for it).  So how do they respond?  They do nothing!

Big mistake.  Especially since, once you understand some basic tax-savings possibilities in this area, you will quickly realize how easy it is to implement.  You see, basic estate planning is not complicated so much as it is a timing consideration and a decision as to trade-offs.  All you have to do is decide on which trade-offs make sense for you.  The rest is done by the lawyers, financial advisors, and so forth.

Consequently, what follows is a brief outline of certain basic estate tax planning techniques that may come into play some time in your financial history.  These techniques can be divided into five main areas as follows.

1 - Outright Gifts to Charities
There are two ways this can be done: before or after death.  If you give to qualified religious, educational, scientific, charitable, or literary organizations before death, you achieve dual functions.  First, you may qualify for an itemized deduction on your income tax return to save on taxes; second, it reduces the size of your taxable estate.

After death, the taxable estate is reduced by the fair market value of any gifts bequeathed.  Thus, if it is property or stocks, bonds, etc., the fair market value at date of death is used as the deductible amount.

Remainder Interests
In this scenario, the donor retains life use of the property, and agrees to have the property pass to a charity upon death.  An income tax deduction based on the fair market value of the property less the so-called "lifetime-use" value is received by the donor, and the estate is reduced upon death.

Easement donations also fall into this category.  You may have a piece of property in which you grant an "easement"–or a right to use the property for a specified period of time.  This has a value to it under current IRS rules.  As an example, you may allow a charity to use part of the woods on your property for a bird sanctuary.  This easement can create a deduction from your taxable estate, as well as a current income tax deduction.

Charitable Trusts
There are two main types of trusts most people use for charities:  
• Charitable Remainder Trusts, and 
• Charitable Lead Trusts.

CHARITABLE REMAINDER TRUST: In this type, the donor gives property over to an irrevocable trust.  However, the income generated by this property is still retained by the donor and/or the donor's beneficiaries.  Upon death of donor and/or beneficiaries, the charity gets the property in full, income and all.

This creates a current income tax deduction based on the value of the remainder interest donated, reduces the taxable estate, and can shift taxable income to lower-bracket beneficiaries.

It's also a great way to convert a non-income producing asset into an income producing one, tax-free.  If you have a property that has highly appreciated value compared to your cost basis (like a stock, or building), you can set up this trust such that the charity will sell the property, invest the proceeds in income-producing assets, and you get this income.  If you had done this yourself, you would have had to pay capital gains tax on the sale of the property first, so you would have had less principal to re-invest on your own, and, therefore, possibly less income being generated.

CHARITABLE LEAD TRUST: This is the opposite of the above.  The income from the investment is gifted to the charity, and the property itself is kept in the estate.  The donor gets a deduction for the "present value" of the income stream gifted to the charity.  The charity gets this income until the donor's death when the property is passed to the beneficiaries.

2 - Use Of Gifts To Individuals
You can reduce the size of your taxable estate by making gifts to individuals while you are still alive.  While this will not give you a current income tax deduction, it obviously lowers your taxable estate.

However, you are limited to how much you can give per year per person to take advantage of this.  You are allowed to give up to $14,000 (2013 amount) per year per person.  A couple can jointly give $14,000 each per person; thus, a husband and wife (gift-splitting) could give their child up to $28,000 per year.  Beyond this amount, you can be held liable for gift taxes as the donor.  There are a few exceptions to this dollar value limitation.  Any payments made directly to a qualified secondary level educational institution, or any qualified medical payments made directly to the source are not subject to the $14,000 limitation.

A caveat: Any gifts that parents make to minors to reduce their estate must usually be made under the Uniform Gifts To Minors Act, or to the Uniform Transfer To Minors Act, or to qualified trusts to preserve this estate tax planning technique.

3 - Use Of Marital Deduction
Although a spouse can leave an unlimited size estate to the surviving spouse who is a US citizen, it is different if it is being left to anyone else.  For other-than-a spouse who is a US citizen, the maximum size estate currently exempt from federal taxes is $5,120,000 per individual (higher if the estate involves a family-owned business).  This refers to the "unified credit" allowance.

Thus, if your total taxable estate is under $5,120,000 you may need little federal estate tax planning.  But if your estate is higher than $5,120,000 and you are concerned with estate taxes even after your surviving spouse passes on, then you can use this Per Individual unified credit exemption in your favor and save taxes on a combined estate of up to $10,240,000.

To do this, you would leave $5,120,000 to your spouse (since the law allows you to leave any amount to a qualified spouse with no immediate federal estate tax consequences) and set up a "credit-shelter" trust to hold the remaining $5,120,000 which you have designated as your allowable unified credit exemption.  According to a loophole in the laws, your spouse is still allowed to receive the income from this trust, but the principal would pass on to the next level of beneficiaries upon the spouse's death.

What you have done here is to make use of both your $5,120,000 unified credit, and your spouse's, so you can shield up to $10,240,000 using this relatively simple estate tax planning technique.  For this to work effectively however, the title to your assets must be allocated properly before the death of either spouse.  Any jointly held property may not work properly in this maneuver.  So some "asset shifting" may be needed in order to set this up.

US CITIZEN VS NON US CITIZEN: Under certain tax provisions enacted, only spouses who are US citizens can receive an unlimited estate.  All others–including Resident Aliens–can only receive a maximum of $60,000.  Under the new law, the exemption amount for non-U.S. domiciliaries remains at only $60,000. Non-U.S. residents have only a $60,000 exemption from the Federal estate tax, unless a treaty provides a greater exemption. Thus, if your estate is over this amount, your non-US citizen spouse can get hit with a heavy estate tax under certain scenarios.

For a non-US citizen, the marital deduction is available only if certain requirements are met. Code §2056(d)(2)(A). The property must be left to the surviving noncitizen spouse in the form of a qualified domestic trust (QDOT), which pays all income to the spouse for life, has at least one US trustee, and may make principal distributions only to the surviving spouse. Code §§2056(d)(2), 2056A. If the trust has more than $2 million in assets, there must be a US corporate trustee, unless a letter of credit or a bond is posted.

A Qualified Domestic (QDOT) Trust is a very specific trust designed to address a somewhat common situation: what happens when the spouse of a non-US citizen dies while leaving significant assets to the non-citizen survivor. Properly set up, a QDOT trust makes it so that, upon your death, your assets pass into the hands of the trust, with the surviving non-citizen receiving the benefits from the trust. Then, upon the death of your non-citizen surviving spouse, the assets pass to your relatives as normal and the estate tax is paid then, much like it would with two citizens.

4 - Using Life Insurance
Using life insurance may be a valuable estate tax planning tool.  It is divided into two areas: Using life insurance to pay estate taxes and using life insurance trusts to avoid paying estate taxes.

Using Life Insurance To Pay Estate Taxes
In its simplest form life insurance can be a cheap way to do estate tax planning.  If your estate tax bracket is high, and if you do not outlive your statistical lifespan, the cost of having life insurance can be a great deal cheaper than the estate tax you will owe.  Thus, life insurance may be a good investment in this context.

So, life insurance can provide the liquidity needed to pay the estate taxes.  This can be valuable especially if you have little cash in the estate, but a lot of property that you don't want to be sold at death.  The life insurance proceeds can be used to pay the taxes, thus preserving the character of the estate.

A cheaper way to go for a married couple doing estate planning is to buy a "second to die" policy.  This is especially true if one of the spouses is considerably older than the other and/or has health problems.  The policy is cheaper because the insurance companies are spreading the statistical "mortality rate" calculation over two combined life spans instead of separate ones.

For some people, a decent life insurance policy may be the easiest form of estate tax planning.  While you are not saving estate taxes, you are planning for their payment without reducing your other taxable assets.  So, this is still a form of estate tax planning.

Using an Irrevocable Life Insurance Trust (ILIT)
Normally, life insurance proceeds paid to anyone other than a spouse who is a US citizen are included in one's taxable estate.  While these proceeds are not subject to income tax chargeable to the beneficiaries, the proceeds do get added to the rest of the taxable estate.  Thus, once the total value of the estate exceeds $5,120,000 including the value of the life insurance, estate tax headaches can occur down the road.

There is a loophole to this, however.  The present law states that life insurance proceeds are taxable in one's estate only if the insured OWNED the contract.  Legally, owning a policy means paying for it, and having the power to exercise various rights such as the right to change beneficiaries, change the policy terms, or cancel the contract.  So, if you legally disavow ownership by having some other individual or a trust own the policy, these proceeds will not be included in your taxable estate even though you are still the one insured.  In short, you are making an irrevocable election to give up control over the policy.  You can do this by having another person own the policy. Example: Your beneficiary for the policy could take over ownership, and make the premium payments.

Or, you can set up an Irrevocable Life Insurance Trust to own the policy.  This works great in the situation where you want your spouse to benefit from the policy without it going into your estate, and still have some control over the principal amount while the spouse is alive.  This trust can also be allowed to pay your spouse the income from investing the life insurance proceeds.  The life insurance proceeds themselves go to another beneficiary(such as a child) upon the death of your spouse.

This technique may be applied even to life insurance policies from your job by transferring the incidence of ownership of this policy and naming your heirs as beneficiaries.

Some Caveats: If you transfer any insurance policies that have "cash surrender value" this amount may be considered as a gift, so the gift tax rules may come into play if this value exceeds $14,000.  There is also a three year rule which applies.  If you die within three years of transferring over any existing policies, this estate tax planning technique may be disqualified.  To beat this problem, however, you can consider canceling an existing policy and starting fresh with a new one, everything else being equal.

5 -  Use Of Trusts
As previously mentioned, some trusts can be valuable estate planning tools.  The Charitable Trusts to allocate property and/or income, the Credit Shelter Trust for taking advantage of the $5,120,000 unified credit, and the Irrevocable Life Insurance Trust we just discussed are good examples.  But there are a few more to outline as well.

Note that trusts can fulfill other purposes besides estate tax planning.  Proper use of a trust can greatly reduce the costs and time associated with the probate process; they can save or at least stabilize income taxes; and they can provide for control, continuity, and clarity of management even after death.  In fact, trusts have so many uses, that entire books and careers are based solely on the use of these interesting "creatures of the tax codes."

However, the purpose of this text is to concentrate only on the estate tax planning benefits of certain trusts that may apply to the majority of taxpayers like you.  Again, this is to give you a basic overview so that you know what's out there.

First, what is a trust?  From a legal and tax standpoint, a trust is a separate entity to which a grantor has transferred legal ownership of property of some type(including cash) for the benefit of one or more beneficiaries.  This trust has a legal life of its own.

For estate tax planning purposes, the other trusts to review besides the ones already discussed in the other sections are the Minor's Trust, the Generation Skipping Trust, and the Grantor Retained Income Trust.

Minor's Trust
This trust is used in conjunction with estate tax and income tax planning for the situation in which someone wants to make a gift to a minor but still wants some control over the property.  Most of these trusts are the so-called "2503(b)" trusts.  The property can be managed by a trustee for the benefit of the beneficiary.  By making this an irrevocable trust, the donor effectively removes the principal from the taxable estate, and the trust can continue indefinitely.

Variations on this theme can be done in which the trust can have a scheduled termination date.  A 2503(c) trust does this.  In this one, it ends when the minor reaches age 21.  If done properly, it also effectively removes assets from the donor's taxable estate.

Generation Skipping Trust
GST’s are not as tax free as other trusts. The IRS levies a Generation Skipping Transfer Tax on all transfers of property over more than one generation. This tax rate mirrors the estate tax rate (35% in 2012). Fortunately, there is a GSTT exemption which also mirrors the estate tax exemption ($5.12 million per individual in 2012).

A GST is created on the death of the grantor. The first $5.12 million of his estate will pass to whomever he chooses, tax free. After that, he will pay estate taxes on the rest of his estate, including the property which will go into the GST. Up to $5.12 million worth of property will be placed in the GST (financially it does not make sense to place more than the exemption amount in the GST). The property in the GST will then be used to provide income to the life beneficiaries (the first generation after the grantor) for the remainder of their lives. On their death, the property in the GST passes to the next generation, without estate taxes (since they were assessed at the time of the creation of the GST). This trust allows the assets to grow over a long period of time, while only being assessed taxes for their value at the creation of the trust.

Concerns with regard to a GST
This trust is only a good choice for grantors if they are sure that the generation which becomes the life beneficiaries are able to provide for themselves without the use of the property in the trust (since the life beneficiaries will not have access to the trust property).

It is possible to create a GST for someone who is not a family member. Also, each individual is allowed the GST exemption at their death. Therefore, a couple with a large estate may create two separate GSTs for their beneficiaries. It is also possible that someone may want to create multiple GSTs by splitting up their exemption into separate trusts.

A GST is most effective when coupled with other estate planning devices. To know which is the best combination for yourself, speak with an experienced estate planning attorney.

Grantor Retained Income Trust
Commonly referred to as a GRIT, this is a form of trust which may allow you to remove a substantial portion of the value of your residence from your taxable estate without losing the right to live in it for a designated period.

Basically, you turn your residence over to an irrevocable trust and your beneficiaries will receive the residence after a certain period.  But you retain the right to live in the house for this specified period of years before the title goes over to the heirs.

This saves estate taxes because the restriction you place to retain your right to live in the house has a value for tax purposes.  The longer you extend this right, the greater the value.  Thus, this value gets subtracted from the actual fair market value of the residence for estate tax purposes.   

In addition, any potential property appreciation after the house goes into the trust is effectively removed from estate taxes under current law.

One big catch, however.  If you do not outlive the original term of the trust you set up for your right to retain occupancy, the full value of the property–including any appreciation–goes back into your estate.

2011 and 2012 Changes to Estate Tax, Gift Tax, and Generation-Skipping Transfer Tax Laws
Here is a summary of what TRA 2010 provides for gifts made in 2011 and 2012 and the estates of decedents who die in 2011 or 2012, as well as some problems created with regard to state estate taxes and generation-skipping trusts:

1. Sets new and unified estate tax, gift tax and generation-skipping transfer tax exemptions and rates. For 2011, the federal estate tax exemption will be $5 million and the estate tax rate for estates valued over this amount will be 35%. The estate tax has also become unified with federal gift and generation-skipping transfer taxes such that in 2011 the lifetime gift tax exemption and generation-skipping transfer tax exemption will be $5 million each and the tax rate for both of these taxes will also be 35%.

2.  Indexes estate tax, gift tax and generation-skipping transfer tax exemptions for inflation in 2012. The estate tax, gift tax and generation-skipping transfer tax exemptions have been indexed for inflation for the 2012 tax year such that each will be increased from $5 million to $5.12 million beginning on January 1, 2012.

3.  Offers "portability" of the federal estate tax exemption between married couples. In 2009 and prior years, married couples could pass on up to two times the federal estate tax exemption by including "AB Trusts" or "ABC Trusts" in their estate plan. TRA 2010 eliminates the need for AB Trust planning or ABC Trust planning for federal estate taxes by allowing married couples to add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption. This will effectively allow married couples to pass $10 million on to their heirs free from federal estate taxes with absolutely no planning at all; however, note that the surviving spouse must file IRS Form 706, United States United States Estate (and Generation-Skipping Transfer) Tax Return, in order to take advantage of the deceased spouse's unused estate tax exemption. Also note that portability was not applied retroactively to January 1, 2010. Aside from this, as it now stands portability is only available for deaths that occur during the 2011 and 2012 tax years. In addition, without AB Trust or ABC Trust planning, state estate taxes may be due in states that collect them. See more on state estate tax issues below.

4.  State estate tax issues. For states that collect a separate state estate tax and have not adopted portability of the state estate tax exemption between spouses, AB Trust or ABC Trust planning may still be required in states that collect state estate taxes, particularly in states where the couple has a large estate, the state estate tax exemption is less than the federal estate tax exemption, and state law allows for a separate state QTIP election.  

5.  Generation-skipping trust issues. Unlike the estate tax exemption, the generation-skipping transfer tax exemption has not been made portable between spouses for the 2011 and 2012 tax years.  Therefore, couples who want to take advantage of passing on up to two times the generation-skipping transfer tax exemption to their heirs in generation-skipping trusts will still need to include AB Trust planning or ABC Trust planning in their estate plans.

Conclusion
Estate tax planning requires two components.  First, the knowledge of your specific situation to execute the trade-offs.  In effect, how much estate tax are you up for, and is this potential tax-savings worth it to you to make the necessary changes.  The second component is the timing factor.  You must do these things at certain times to qualify for the tax-saving features.

As you can see, effective estate tax planning is not a one-time thing.  It needs a periodic review of your financial situation and your marital status, as well as that of your potential beneficiaries.  This must be coupled with the ever-changing federal and state tax laws as they apply to estate tax planning.  Finally, you must coordinate all of this with your own cash flow situation.

However, with the right advisors, and with time on your hands, this can be some of the most effective planning you can do on a dollar-for-dollar tax-saving basis.

Reference: Practice Enhancers, Able & Co.

What is Portability of the Estate Tax Exemption?

What is Portability of the Estate Tax Exemption?

A New Estate Tax Election for Surviving Spouses

Courtesy: Julie Garber, About.com Guide 

See More About: estate taxes estate tax exemption

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. A big part of this new law is modification of the federal estate tax rules, including offering "portability" of the federal estate tax exemption between spouses for the 2011 and 2012 tax years. But what does "portability" of the estate tax exemption mean?

Definition of Portability of the Estate Tax Exemption
In simple terms portability of the federal estate tax exemption between married couples means that if the first spouse dies and doesn't use up all of his or her federal exemption from estate taxes, then the exemption that the deceased spouse didn't use will be transferred to the surviving spouse's exemption so that he or she can use the deceased spouse's unused exemption plus his or her own exemption when the surviving spouse later dies.

Examples of Portability of the Estate Tax Exemption
Some examples using numbers should help to illustrate the concept of portability of the federal estate tax exemption between spouses:

Result Without Portability
Assume Bob and Sue are married and have all of their assets jointly titled and their net worth is $8,000,000, Bob dies first and the federal estate tax exemption is $5,000,000 on the date of his death, and there isn't portability of the estate tax exemption between spouses:
Under these facts, when Bob dies his estate won't need to use any of his $5,000,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction allows Bob to transfer his share of the joint assets to Sue without incurring any federal estate taxes.  Assume that at the time of Sue's later death the federal estate tax exemption is still $5,000,000, the estate tax rate is 35%, and Sue's estate is still worth $8,000,000.  With Bob's $5,000,000 estate tax exemption completely wasted, when Sue later dies she can only pass on $5,000,000 free from federal estate taxes. Thus, Sue's estate will owe about $1,050,000 in estate taxes after her death:
$8,000,000 estate - $5,000,000 exemption = $3,000,000 taxable estate
$3,000,000 taxable estate x 35% estate tax rate = $1,050,000

Result With Portability
Assume Bob and Sue are married and have all of their assets jointly titled and their net worth is $8,000,000, Bob dies first and the federal estate tax exemption is $5,000,000 on the date of Bob's death, and there is portability of the estate tax exemption between spouses:
As above, when Bob dies his estate won't need to use any of his $5,000,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction allows Bob to transfer his share of the joint assets to Sue without incurring any federal estate taxes.  Assume that at the time of Sue's later death the federal estate tax exemption is still $5,000,000, the estate tax rate is 35%, and Sue's estate is still worth $8,000,000.  Enter portability of the estate tax exemption - With full portability of the estate tax exemption between spouses, under these facts Bob's unused $5,000,000 estate tax exemption will be added to Sue's $5,000,000 exemption, in turn giving Sue a $10,000,000 exemption.  Since Sue has "inherited" Bob's unused estate tax exemption and she can pass on $10,000,000 free from federal estate taxes at the time of her death, Sue's $8,000,000 estate won't owe any estate taxes at all:
$8,000,000 estate - $10,000,000 exemption = $0 taxable estate
Thus, portability of the estate tax exemption will save the heirs of Bob and Sue $1,050,000 in estate taxes.

Of course, these examples illustrate how portability of the estate tax exemption between spouses really works in the same way that the AB Trust system works but without the need for setting up AB Trusts.

Understanding Federal Estate Taxes
What is the Federal Estate Tax?
What is the Exemption From Estate Taxes?
Exemption From Estate Taxes: 1997 - 2013

Estate Tax Return Checklist - Form 706: Supplemental Documents

Estate Tax Return  
Checklist Form 706:  
Supplemental 
Documents

GENERAL ITEMS	EXPLANATION
• List of executors' names, addresses and social security numbers if there is more than one executor.  • Notice of fiduciary relationship.  The term fiduciary means any person acting for another person. It applies to persons who have positions of trust on behalf of others. A personal representative for a decedent's estate is a fiduciary.	• Form 56   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. See the Instructions for Form 56 for filing requirements and other information. Tip:  File Form 56 as soon as all the necessary information (including the EIN) is available. It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. • Termination of fiduciary relationship   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. See Form 56 and its instructions for more information. At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code §6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code §2204 or §6905, to wind up your duties as fiduciary. See below for a discussion of these forms.
• Certified copy of will if decedent died testate (died leaving a valid will)	• You will need a copy of the will. Your spouse's lawyer may have the will or it may be in a safe, a safe deposit box, or with your spouse's personal belongings.
• Request for  Early Determination of Estate Tax	• Request for prompt assessment (charge) of tax  The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. • Form 4810  Form 4810 can be used for making this request. It must be filed separately from any other document. • Requesting Discharge From Liability The executor representing a decedent's estate or a fiduciary of a decedent's trust may request a discharge from personal liability for the decedent's income, gift, and estate taxes using Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905. The executor or fiduciary will be discharged from personal liability for any tax deficiency later found to be due 9 months (or 6 months in the case of a fiduciary's request) after the IRS's receipt of the request for discharge, or the earlier payment of any amount determined by the IRS to be owed. In certain instances where the date for payment of the estate tax has been extended, the IRS may require a bond as a condition for discharge. Tip:  Form 5495 should not be filed until after the tax returns are filed for which discharge from liability is requested. If requesting a discharge from personal liability for the estate tax, Form 5495 may be attached to Form 706. If Form 5495 is not filed with the Form 706, it may be filed any time during the 3-year period following the date the Form 706 is filed. A taxpayer must submit a separate request for discharge from personal liability for any tax returns filed after Form 5495.
• Form 2848, Power of Attorney, if executor wishes to grant authority to someone to represent the estate or enter into closing agreements with the IRS	You have the right to represent yourself or have someone represent you before the IRS in connection with a federal tax matter. Your representative must be an individual authorized to practice before the IRS. If you want someone to represent you before the IRS, you must submit a power of attorney with the IRS office where you want your representative to act for you.
• Copy of foreign probate court papers if decedent was a non-resident citizen	Tip: Use Form 706-CE if foreign death tax is to be claimed
• Copy of Death Certificate	• Many of the offices or agencies you contact will require you to provide a copy of the death certificate. You can buy certified copies of the death certificate through your funeral director or directly from the county health department for a small fee, typically a few dollars per certificate. It is worth paying the money for the certified copies however, since many companies require it. Tip: Whether you think you need them or not, try to get at least 10 certified copies of the death certificate.
• Certified copy of court order admitting will to probate	• If your spouse had a valid will, try to find a copy of it. Check with your lawyer, family and anyone who might know where the will is kept. It may be stored in a safe deposit box, which is sealed at the time of death in some states. Caution: Wills should not be stored in safe deposit boxes. If your spouse did not have a will, his or her estate will be distributed according to state intestacy law. However, the state intestacy law will not apply to property where the title is in the name of the deceased and another person who has a right of survivorship. This property automatically passes to the co-owner.
• Copy of court decree interpreting will (also order of distribution if entered at time return is filed)	• Probate is the legal process of paying the deceased's debts and distributing the estate to the rightful heirs. This process usually entails:    ○ The appointment of an individual by the court to act as personal representative or executor of the estate; this person is often named in the will. If there is no will, the court appoints a personal representative, usually the spouse.    ○ Proving that the will is valid.    ○ Informing creditors, heirs, and beneficiaries that the will is to be probated.    ○ Disposing of the estate by the personal representative in accordance with the will or state law. • The personal representative named in the will must file a petition with the court after the death. There is a fee for the probate process. Depending on the size and complexity of the probable assets, probating a will may require legal assistance. • Assets that are jointly owned by the deceased and someone else are not subject to probate. • Proceeds from a life insurance policy or Individual Retirement Account (IRA) that are paid directly to a beneficiary are also not subject to probate.
• Statement explaining prior payments of estate tax	Tip:  Schedule Q -- Credit for Tax on Prior Transfers
• Statement regarding flower bonds redeemed to pay estate taxes	• 'Flower Bond':  Fixed income products that were originally purchased by investors at a discount for the purpose of paying federal estate taxes upon their maturity.
• Evidence regarding dispositions of property within six months if alternate valuation date is elected	Tip: IRC §2032(a) allows executors to elect to value an estate on the date that is six months after the date of death. Any property distributed, sold, exchanged or otherwise disposed of during the six months is valued as of the date of its disposition. However, any interest whose value changes by merely the lapse of time is valued as of the date of death, with an adjustment allowed for any difference in value due to any factor other than the lapse of time (§2032(a)(3)). • Distributions, sales, exchanges, and other dispositions of the property within the 6-month period after the decedent's death must be supported by evidence. If the court issued an order of distribution during that period, you must submit a certified copy of the order as part of the evidence. The IRS may require you to submit additional evidence if necessary.
• Copy of qualified disclaimer of property instrument	• For purposes of Federal estate, gift and generation-skipping transfer taxes, a disclaimer is an irrevocable and unqualified refusal by a person to accept an interest in property. Properly disclaimed property will be treated as though it had never been transferred to the person making the disclaimer. Tip: In most cases, the tax consequences of receiving property fall far short of the value of the property itself. It is usually more beneficial to accept the property, pay the taxes on it, and then sell the property, instead of disclaiming interest in it.  • When used for succession planning, qualified disclaimers should be used in light of the wishes of the deceased, the beneficiary and the contingent beneficiary.
EXTENSION OF TIME TO FILE OR PAY ESTATE TAX	EXPLANATION
• Form 4768 if extension of time to file or pay has been granted	• Federal Estate Tax. Estate tax is generally only due on estates exceeding the unified credit exemption equivalent, which for 2012 is $5,120,000. In 2011, the exemption amount was $5,000,000 and in 2010, there was no exemption amount. Estates over $5,120,000 are subject to 35% tax.
• Notice of election where installment payments of estate tax on closely held businesses is elected or notice of protective election	Tip: If the gross estate includes an interest in a closely held business, you may be able to elect to pay part of the estate tax in installments under §6166.  In general, that amount is the amount of tax that bears the same ratio to the total estate tax that the value of the closely held business included in the gross estate bears to the adjusted gross estate.
• Notice of election to postpone estate tax on reversionary or remainder interest (if this applies, a copy of the will or other instrument creating such interest should be attached).	Tip:  If an estate includes a remainder or reversionary interest that qualifies under §6163, an executor may defer payment of the estate tax on such interest until six months after the termination of the preceding interest. Furthermore, for reasonable cause, an executor can extend this period for up to three years beyond the initial six-month period.
CREDITS	EXPLANATION
• Foreign death tax return if decedent was a non-resident citizen.	______________________________
• Certificate of payment of state death taxes	• State Death Taxes. State laws vary, but generally any estate which pays a federal estate tax must also file a state estate or death tax form and pay the state death tax. This amount is paid by the estate to the state in which the deceased lived. • State Inheritance Taxes. Again, state requirements vary. Most states charge no inheritance tax.
• Form 4808 - Computation of Federal Gift Tax Credit	Tip: You may take a credit for Federal gift taxes paid under IRC Chapter 12 (IRC §2501), and the corresponding provisions of prior laws, on certain transfers the decedent made before January 1, 1977, that are included in the gross estate.  See IRC §2012 for details.
GROSS ESTATE	EXPLANATION
• Schedule A -- Real Estate • Schedule A-1 -- Section 2032A Valuation	• Real estate appraisals
• Schedule B -- Stocks & Bonds	• Brokerage account statements • Five years balance sheets and earnings statement of any closely held business • Valuation information of any closely held stock
• Schedule C -- Mortgages, Notes & Cash	• Valuation information for any mortgages and notes valued less than the face amount (e.g. letters from brokers or financial information from a financially distressed company).
• Schedule D -- Insurance on the Decedent's Life	• Form 712 relating to life insurance. • The proceeds from an insurance policy can generally be paid directly to the named beneficiary. These claims can be processed quickly and are an important source of income for the survivors during this difficult time. Tip: File claims for insurance policies as soon as possible, especially if finances are a concern. • You may be required to decide you want the payments made. Options might include taking the money in a lump-sum, or having the insurance company make fixed payments over a period of time. Which payment option to choose depends on your financial situation. You may, for example, want smaller fixed payments in order to have a steady income. Or you may want the full amount immediately to pay bills or to invest.
• Schedule E -- Jointly Owned Property	• Appraisal information • Forms 712 relating to life insurance (statement explaining exclusion of life insurance from gross estate). • Proof of co-tenants' interests in joint property.
• Schedule F -- Other Miscellaneous Property	• Appraisal information • Safe deposit box contents excluded from gross estate • Forms 712 relating to life insurance (statement explaining exclusion of life insurance from gross estate). • Copy of any trusts in which decedent had an interest • Five years balance sheet and earning statement of any closely held business  • Valuation information of any closely held stock, partnership interest or other business interest
Schedule G -- Transfers During Decedent's Life	• Copies of federal gift tax returns (Forms 709 and 709-A) • Calculations includable gift taxes paid within three years of death • Informational statement regarding certain lifetime transfers (including copy of any transfer agreement)
Schedule H --Powers of Appointment	• Power of appointment instruments
• Schedule I --  Annuities	• The names, addresses and identification numbers of the recipients of any lump-sum distribution if an election is made to exclude such amount from the gross estate.
• Schedule J -- Funeral Expenses & Expenses Incurred in Administering Property Subject to Claims	• Evidence to support payment of executor's and attorney's fees
• Schedule M -- Bequests etc. to Surviving Spouse (Marital Deduction)	•Marital deduction computation for certain formula bequests under pre-September 12, 1981 wills • Statement and calculation regarding deduction for residency marital bequest • Computation of death taxes paid out of marital bequest • Copy of qualified disclaimer if any property passed to the surviving spouse as a result of a disclaimer
• Schedule O --  Charitable, Public, and Similar Gifts and Bequests	• Written instrument of any charitable transfer • Computation and supporting data regarding deduction for residency charitable bequest
• Schedule P --  Credit for Foreign Death Taxes	• Form 706-CE if foreign death tax credit is claimed
• Schedules R and R-1 —Generation-Skipping Transfer Tax	• If the decedent had been adjudged mentally incompetent, a copy of the judgment or decree must be attached (mental disability provision).  If not adjudged mentally incompetent, a letter from physician must be attached if decedent was mentally incompetent.  This is required if the mental disability grandfather rule applies.

Reference:  Matthew Bender's Tax Manual, New York, NY,  www.irs.gov