6A-Estate Tax Flashcards
Filing Requirement
For decedents dying in 2023, IRS Form 706, United States Estate (and Generation‐Skipping
Transfer) Tax Return, must be filed by the executor for the estate of every U.S. citizen or
resident:
a. Whose gross estate, plus adjusted taxable gifts and specific exemption, is more than
$12,920,000/$25,840,000 or
b. Whose executor makes the election to permit the decedent’s surviving spouse to use
the decedent’s unused exclusion amount, regardless of the size of the decedent’s gross
estate.
2. When to File: generally, within 9 months after the date of death, but an extension may be
filed, if needed on filing Form 4768.
Gross Estate
The gross estate is valued at the date of death (unless the executor elects the alternate valuation
date) and includes all property that the decedent had an interest in, notably real estate, stocks,
bonds and other investments, notes receivable. It also may include:
1. Certain transfers made during the decedent’s life without adequate and full consideration
(or gifts made within 3 years prior to death)
2. Annuities
3. The includible portion of tenancies by the entirety
4. Certain life insurance proceeds (even though payable to beneficiaries other than the estate)
5. Property over which the decedent possessed a general power of appointment (such as revocable
trusts)
6. Community property to the extent of the decedent’s interest as defined by applicable law
Estate Deductions
Estates are allowed certain deductions:
–
Funeral expenses and expenses incurred in administering the property (legal fees, accounting fees, executor fees, etc.)
–
Debts of decedent, mortgages payable, and liens
–
Losses incurred during administration
–
Specific bequests
–
Charitable, Public, and Similar Gifts if specifically provisioned for in the will.
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Estates are allowed certain credits:
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Credit for Foreign Death taxes
–
Credit for Tax paid on prior transfers
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Alternative Valuation date
- Under the alternate valuation method, the executor determines the FMV of the property
that will be included in the estate computation on the date that is 6 months after the death
unless:
- The property is sold, distributed, or otherwise disposed of within 6 months. - Note 1: If the property is sold, the basis is the value of the property at the date of sale.
- Note 2: The alternate valuation date cannot be elected unless the election will decrease both
the value of the gross estate and the sum (reduced by allowable credits) of the estate and
GST (generation‐skipping transfer) taxes payable by reason of the decedent’s death for the
property includible in the decedent’s gross estate.
Income in Respect of a Decedent
Income in respect of a decedent includes any income the decedent would have earned at
the time of death and that is not included on the decedent’s final tax return. Usually, income
paid after date of death.
2. Several types of income are includible as income in respect of a decedent, such as:
a. Wages earned but not paid
b. Deferred wages
c. Uncollected interest on various bonds
d. Proceeds from completed sales of goods
e. Farm produce contingent fees
Martial Deduction
The marital deduction is a provision that went into effect in 1982. It accomplishes the following:
1. Eliminates both federal estate and gift tax on transfers between spouses
2. Allows surviving spouse to use late spouse’s unused exemption (called “portability”), thereby
doubling the exemption amount for estates in 2023 from $12.92 to $25.840 million.
Gift Tax- Gift splitting
Gifts (including property) that either the taxpayer or taxpayer’s spouse make to third parties
during the calendar year are considered to be made one‐half by each if all of the following apply:
1. The taxpayer and spouse were married to one another at the time of the gift
2. If divorced or widowed after the gift, the taxpayer did not remarry during the remainder of
the calendar year
3. Both taxpayer and spouse are citizens of the U.S. at time of gift
4. The taxpayer did not give spouse a general power of appointment over the property interest
transferred
5. If gift splitting and value of gift does not exceed $34,000, the consenting spouse must sign
the Form 709 on line 13 along with filling in their SSN
6. If gift splitting and value of gifts exceeds $34,000, then both spouses must file a Form 709
7. Note: Spouse cannot file a “joint” gift tax return even if they otherwise file a joint Form 1040
income tax return
Gift Tax- Annual Exclusion
- For 2023, the gift exclusion is $17,000 per recipient
- The taxpayer and spouse can gift a combined $34,000 per year to whomever without having
to file a return
Gift Tax- Unified Tax Credit
Unified tax credit is the maximum amount of credit that each taxpayer is allowed to claim in connection
with tax incurred on lifetime taxable gifts.
1. 2023 unified credit amount is $12.92 million for the value of assets transferred before estate
and gift taxes apply
2. Unifies the estate and gift taxes into one system, decreases tax bill of the individual or estate
Gift Tax- Tax Exempt Gifts
Some gifts are tax exempt:
1. Gifts to IRS‐approved charities (generally, 501(c)(3) organizations – foreign charities are
generally excluded)
2. Gifts to your spouse (assuming he/she is a U.S. citizen
3. Gifts made directly to medical service providers covering another person’s medical expenses
4. Gifts made to an educational institution covering another person’s tuition expenses
Gift Tax- Generation Skipping Transfer Tax
- Is a federal tax applied to transfers of property by gift or inheritance to a beneficiary who is
at least 37 ½ years younger than the donor - Meant to prevent escaping one level of estate taxes that a given property can potentially go
through (grandfather‐son‐grandson) - GSTT is a flat 40%, but has the same lifetime exemption as the regular gift tax: $12.92 million/
$25.84 million
a. Applies to direct skips: Outright gifts to grandsons, granddaughters, etc.
or
b. Applies to indirect skips: Property gifted to a trust whose potential beneficiaries are
individuals who meet the age gap
Gift Tax- Filing Requirements
- If taxpayer must report the gift, Form 709, U.S. Gift (and Generation‐Skipping Transfer) Tax
Return is filed separately from Form 1040 - Form is due April 15th
- If the taxpayer extends the filing deadline to October 15 for their Form 1040, that applies
to Form 709 as well - If the taxpayer does not have a Form 1040 filing requirement but does have a Form 709
filing requirement, an extension can be requested by filing Form 8892
