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The United States Estate (and Generation Skipping Transfer) Tax Return is an set of 41 pages of detailed financial information about virtually every asset and debt of each decedent subject to the U.S. estate tax and generation skipping transfer tax. The return must be filed by the executor, administator or personal representative of the decedent - and in some cases that person may be personally liable for the payment of the estate tax if any is due. The return is required for every U.S. citizen, regardless of where he or she lives, and of every resident in the U.S., even though the resident is not a citizen of the U.S. In some cases, a non-resident alien's estate (not a citizen of the US) may be required to file form 706-NA, to pay the estate tax on property located in the U.S.
The return is required to be filed nine months from the date of the death of the decedent unless an extension of time to file is requested on form 4768.
The instructions for the latest version of the estate tax return state that "Form 706 must be filed by the executor for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $600,000". The $600,000 amount represents the amount of an estate that would not be subject to tax because of the unified credit - which was $192,800 until 1998. The tax on an estate of $600,000 in 1997 would be $192,800, but the law permits each decedent a credit of that amount from the estate tax. Thus, estates (in 1997) with a value of less than $600,000 would not be subject to tax and need not file a return.
The Tax Reform Act of 1997 increased the unified credit (and the exempt
value of an estate) starting in 1998 - as explained in the estate
tax tables. Generally, if no tax is due in connection with any kind
of tax return, there is no penalty for not filing the return. Thus, if
the executor can be sure that the unified credit will eliminate any tax
that might otherwise be due, then the estate tax return would not have
to be filed.
For 1998, the unified credit eliminates the federal estate tax on taxable estates of $625,000 or less.
For each tax form, the IRS is required to provide an estimate of the time that is required for the taxpayer to keep records, to read the instructions, to prepare the form and to prepare it for mailing to the IRS. It appears that the IRS bases their estimates on minimum amount of time required for each part of the process and that the taxpayer is a tax professional. Here are their estimates for the average filing time for each part of the process of preparing the estate tax return.These estimates are the sum of the separate estimates for each of the various schedules. Thus, these amounts presume that the return would involve every supporting schedule that could be required with the estate tax return.
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| Recordkeeping | 9 hours, 40 minutes |
| Reading the instructions | 6 hours, 44 minutes |
| Preparing the form | 11 hours, 14 minutes |
| Copying, collating and mailing | 8 hours, 45 minutes |
| Total time | 36 hours, 23 minutes |
Form 4768 may be filed to request an extension of time to file the estate tax return.
Review gift tax forms 709 for gifts made in prior years.
Form 1041 will be required to pay tax on any
income of the estate received in any tax years between the date of death
of the decedent and the date the estate is settled and all funds are distributed.
Supporting schedules for the estate tax return are included as part of the return.
The estate tax return presumes that each decedent has detailed records of the value of every asset and the amount of every debt owed by the decedent at the time of his or her death. Income and deductions of the decedent prior to the date of death will be reported on a final form 1040. Income and expenses of the decedent after the date of death will be reported on form 1041 until the estate is settled. The executor of the estate will be required to identify certain items of property that pass directly to a beneficiary - such as life insurance, annuity policies, IRA or other qualified retirement savings accounts and assets in a trust in which the decedent retained certain powers. Powers to appoint the distribution of income or principal of certain trusts of others may also be part of the taxable estate, along with any jointly owned property. The value of certain gifts made while the decedent was alive may be included in the taxable estate, with offsetting credits for any gift taxes paid.
Most of the tax code sections that proscribe how estates or gifts are taxed are Internal Revenue Code Sections 2001 through 2704.
The IRS instructions for form 706 provide extensive and detailed information
about the procedures for filing an estate tax return.
For a copy of the following IRS publications, visit their web site at
http://www.irs.ustreas.gov/prod/forms_pubs/index.html
Link on the section for IRS publications and select
* Publication 537 - Installment Sales
* Publication 544 - Sales and other Dispositioins of Assets
* Publication 551 - Basis of Assets
* Publication 559 - Survivors, Executors and Administrators
* Publication 950 - Introduction to Estate & Gift Taxes
Line 23 and Schedule S of the current estate tax form refers to the IRC 4980A excise tax on "excess retirement accumulations" in a tax qualified retirement savings plan. That tax was repealed for tax years after 1986.
The Taxpayer's Relief Act of 1997 included extensive changes in the estate tax rules. None of these changes have been reflected in the instructions to the form 706 as of late March, 1998.
Taxpayer's Relief Act of 1997 - Statement of the Managers
Part V - Estate, Gift and Generation Skipping
Tax Provisions
Part XIII - Estate, Gift and Trust Simplification
Provisions
Further details about legal methods of tax avoidance are available in our subscriber's web site. Changes in the tax laws and research reports on how to avoid excessive taxes are provided in our monthly newsletter - Vern Jacobs' Tax Solutions
About the author:
Vernon Jacobs is a CPA/CLU who works as a tax author and consultant. He writes Vern Jacob s' Tax Solutions, is the author of The Jacobs Report on Asset Protection Strategies, and serves as the Tax Editor for OFFSHORE, an eJournal. He has “big six” CPA experience and spent 12 years as a senior financial executive for an insurance company. He’s been the software columnist for Personal Financial Planning for five years. His email address is vkj@rpifs.com and his web site is http://www.rpifs.com/apvkj.htm He can be reached by phone or fax at (913) 362-9667.
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