Estate Tax Return

2016 Estate and GST tax exemption

$5,450,000

Credits against the Estate Tax

1.Unified credit (applicable credit amount). For 2015, the applicable credit amount is $2,117,800 based on the basic exclusion amount of $5,430,000 2.Credit for tax on prior transfers to decedent. Credit is allowed against the gross estate tax for federal estate taxes paid on the transfer of property to the decedent from a transferor who died within 10 years before or 2 years after the decedent's death. 3. Credit for foreign death taxes

Highest estate tax rate

40%

Curtesy Interest

A CURTESY interest is a deceased wife's real property that passes on her death to her husband for his lifetime if they have had children who are able to inherit the property.

Dower Interest

A DOWER interest is the part of the deceased husband's real property allowed to his widow for her lifetime.

Credit for Federal Gift Taxes

A credit may be taken for Federal Gift taxes imposed by Chapter 12 of the Code, and the corresponding provisions of prior laws, on certain transfers the decedent made before January 1, 1977, that are included in the gross estate. The credit cannot be more than the amount figured by the following formula: GROSS ESTATE TAX MINUS THE SUM OF State Death Taxes + Unified Credit DIVIDED BY Value of gross estate minus (the sum of the deductions for charitable, public, and similar gifts and bequests and marital deduction) MULTIPLIED BY Value of Included Gift NOTE. No credit is allowed for any Gift Tax paid on gifts made after 1976.

State Death Tax Deduction

A deduction may be taken for estate, inheritance, legacy, or succession taxes paid as the result of the decedent's death to any state or the District of Columbia.

Alternate valuation methods

Alternate valuation. An executor may elect to use the alternate valuation method. Under this method, property included in the decedent's gross estate is valued as of a date other than the date of death. If the alternate valuation method is properly elected, property in the estate is valued according to the following rules: Any property distributed, sold, exchanged, or otherwise disposed of within 6 months after the decedent's death is valued as of the date on which it is first distributed, sold, or exchanged, or otherwise disposed of. Any property not disposed of within 6 months after the decedent's death is valued as of 6 months after the date of the decedent's death. Any property, interests, or estate that is affected by mere lapse of time is valued as of the date of the decedent's death. However, this is adjusted for any difference in value not due to mere lapse of time as of 6 months after the decedent's death, or, if earlier, as of the date of its disposition. Examples: patents, estates for the lives of persons other than the decedent, remainders, and reversions

Form 4768

Application for Extension of Time to File a Return and/or Pay U.S. Estate Tax

Form 706

Estate Tax Return Must be filed within 9 months of decedent's death Only need to be filed if the estate is valued at over 5.45 million

Special Use Valuation

Farming and closely-held business real property may be valued using "special-use valuation." An executor of an estate may elect to value qualified real property that is included in the decedent's estate and that is devoted to farming, or is used in a closely-held business, on the basis of its actual use for these purposes, rather than its FMV determined on any other basis. Property passing in trust and property owned indirectly through a corporation or partnership qualify for this special-use valuation. The decedent must have been a citizen or resident of the U.S. at the time of death and the property must be located in the U.S. The election does not have to cover all qualified real property included in the estate. The total value of the property valued under this Section (2032A) may not be decreased from FMV by more than $1,110,000 for decedents dying in 2016 ($1,120,000 for 2017).

Form 1041

Fiduciary Income tax return Form 1041 must be filed for a domestic estate that has: Gross income for the tax year of $600 or more, or A beneficiary who is a nonresident alien

Estate Tax Lien

Generally, no tax may be assessed later than three years after the estate tax return is filed or is due, whichever is LATER. However, there are exceptions to the three year rule as follows: The period of assessment is six years if 25% or more of the value of the gross estate is not reported on the return. The period of assessment of taxes is four years for recipients of PROPERTY included in the gross estate. Basis of property acquired from a decedent. Generally, the basis of property in the hands of a person who acquired it from a decedent is the value used for estate tax purposes.

Lapsed Back Gifts

Gifts within 3 years of death must be included in gross estate. If the decedent gifted any of the property listed below, or relinquished a power over such property within three years of death, the value of the property is included in the gross estate and the gifts are said to be "lapsed back." Gift tax paid by decedent on gifts made by the decedent or spouse within three years of death (Section 2035(b)) Life insurance policies on the decedent's life Retained life estates and reversions under Section 2036 and Section 2037 Revocable transfers (Section 2038) except transfers from a decedent's revocable trust. A revocable trust is a grantor trust under Section 676 (Section 2035(e))

Taxable Estate

Gross estate reduced by: 1. Funeral expenses paid out of the estate 2. Expenses of administering the estate 3. Debts owed at the time of death 4. Casualty and theft losses that occur during settlement of the estate 5. The marital deduction (the value of the property that passes from the estate to the surviving spouse 6. Charitable deductions 7. Medical expenses. ( if paid within the 1 year period after the decendent's death, can be deducted on decedent's final income tax return

QTIP

Qualified terminable interest property

Provisions that apply to the election of the alternate valuation method

The election must be made on the first estate tax return filed for the estate. The return does not have to be filed on time for the election to apply. However, the election must be made on a return filed within 1 year of the due date (including extensions) for filing the return. The election cannot be changed. The election may be made only if it will decrease the value of the gross estate and the sum of the estate tax and the generation-skipping transfer tax (reduced by any allowable credits). The election is effective only if a return is required to be filed. The election applies to all of the property in the estate.

filing requirements for a decedent who died in 2016

The final income tax return (Form 1040) for the decedent Fiduciary income tax returns (Form 1041) for the estate during administration, and The Estate Tax Return, Form 706, if the fair market value of the assets of the estate exceed $5.45 million, or whose executor elects to transfer the DSUE (Deceased Spousal Unused Exclusion) amount to the surviving spouse, regardless of the size of the decedent's gross estate

Form 706

US Estate and Generation-Skipping Transfer Tax Return