ESTATE TAX ISSUE

WHAT IS THE ESTATE TAX?

Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses, and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

DO YOU NEED TO FILE F706?

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding:

$1,500,000 (2004-2005)
$2,000,000 (2006-2008)
$3,500,000 for decedents dying (2009)
$5,000,000 or more for decedents dying (2010-2011) (note: there are special rules for decedents dying in 2010)
$5,120,000 (2012)
$5,250,000 (2013)
$5,340,000 (2014)
$5,430,000 (2015)
$5,450,000 (2016)
$5,490,000 (2017)
$11,180,000 (2018)
$11,400,000 (2019)
$11,580,000 (2020)
$11,700,000 (2021)
$12,060,000 (2022)
$12,920,000 (2023)

Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.

WHAT IS GIFT TAX?

Gift Tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

What Can Be Excluded from Gifts?

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts:

Gifts that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

Exclusions Amount

The annual exclusion for gifts is:

$11,000 (2004-2005)
$12,000 (2006-2008)
$13,000 (2009-2012)
$14,000 (2013-2017)
$15,000 (2018-2020)
$16,000 (2021-2022
$17,000 (2023)

The basic exclusion amount (or applicable exclusion amount in years prior to 2011) for gifts is:

$1,000,000 (2010)
$5,000,000 (2011)
$5,120,000 (2012)
$5,250,000 (2013)
$5,340,000 (2014)
$5,430,000 (2015)
$5,450,000 (2016)
$5,490,000 (2017)
$11,180,000 (2018)
$11,400,000 (2019)
$11,580,000 (2020)
$11,700,000 (2021)
$12,060,000 (2022)
$12,920,000 (2023)

If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities.

WHO MUST FILE FORM 709?

In general, if you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) in the following situations:

If you gave gifts to someone in 2021 totaling more than $15,000 (other than to your spouse), you probably must file Form 709. But see Transfers Not Subject to the Gift Tax and Gifts to Your Spouse, later, for more information on specific gifts that are not taxable
Certain gifts, called future interests, are not subject to the $15,000 annual exclusion and you must file Form 709 even if the gift was under $15,000 (see Annual Exclusion)
Spouses may not file a joint gift tax return. Each individual is responsible for their own Form 709
You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part 1—General Information
If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return
Each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift and GST taxes
- The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax
- If a donor dies before filing a return, the donor's executor must file the return

Who Does Not Need to File?

If you meet all of the following requirements:

You made no gifts during the year to your spouse
You did not give more than $15,000 to anyone
All the gifts you made were of present interests
Gifts to qualifying charities are deductible from the value of the gift(s) made

Gifts to Charities

If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities. If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities.

ESTATE TAX FOR NON RESIDENTS

For estates of decedent nonresidents/not citizens of the United States, the Estate Tax is a tax on the transfer of U.S.-situated property, which may include both tangible and intangible assets owned at the decedent’s date of death. The computation of the tax requires that you state the total value of assets situated in the United States, and generally requires a separate statement of the total value of assets situated outside the United States. The two totals are the “gross estate in the United States” and the “gross estate outside the United States.” Property includible in these two totals may consist of cash and securities, real estate, insurance, trusts, annuities, business interests, and other assets. To value the assets held at the date of death, the fair market value is used, not necessarily what was paid for them or what their values were when they were acquired.

Who Must File?

The executor must file Form 706-NA if the date of death value of the decedent’s U.S.-situated assets, together with the gift tax-specific exemption and the amount of adjusted taxable gifts, exceeds the filing threshold of $60,000. The gift tax-specific exemption refers to the amount allowed for gifts made by the decedent between September 9, 1976, and December 31, 1976, inclusive. The amount of adjusted taxable gifts refers to the amount of adjusted taxable gifts made by the decedent after December 31, 1976.

When To File?

File Form 706-NA within 9 months after the date of death unless an extension of time to file was granted.

If you are unable to file Form 706-NA by the due date, use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an automatic 6-month extension of time to file. If you have already received a 6-month extension and are an executor who is out of the country, you may apply for an additional extension of time to file by filing a second Form 4768 and completing the form and attaching a written statement of explanation as instructed. For both extensions, check the "Form 706-NA" box in Part II of Form 4768.

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Tax & Accounting Service