| Procrastinate longer...Extended Deadline for Estates to File Estate Tax Return |
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IRS Extends Deadline for Estates to File Estate Tax Return to Make Portability Election Benefiting Surviving Spouses
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Sacramento — The Internal Revenue Service today issued guidance that allows certain estates of married individuals who died during the first six months of 2011 an extension of the deadline to make the portability election.
The portability election passes along a decedent’s unused estate and gift tax exclusion amount to a surviving spouse. An extension is available to estates of married individuals with assets of $5 million or less, but only if the decedent died in the first six months of 2011, and the executor files Form 4768 requesting an extension no later than 15 months after the decedent's date of death.
The extra time is available to an estate even if the estate did not request an automatic six-month filing extension on Form 4768 prior to the regular nine-month filing deadline. As a result, these estates will now have until 15 months after the date of death, rather than the usual nine months, to make the election by filing an estate tax return on Form 706. Thus, the first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are now due on Monday, April 2, 2012.
Affected estates should submit both a properly-prepared Form 4768 and Form 706 to the IRS no later than 15 months after the decedent’s date of death. Further details are in Notice 2012-21, posted today on IRS.gov.
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islip + company cpas, sacramento tax preparation experts, auburn tax preparation experts |
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| Overview of estate, gift and generation-skipping transfer tax changes under the 2010 Tax Relief Act |
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Under the law in effect before the enactment of the 2010 Tax Relief Act, the estate tax was scheduled to be repealed in 2010, and then to return in 2011 with an exemption of $1 million and graduated rates reaching a top rate of 55% on transfers over $3 million. The 2010 Tax Relief Act reinstates the estate tax retroactively to the beginning of 2010, except where the executor of the estate of a decedent dying in 2010 makes an election (described below) to opt out of the estate tax and be subject to the modified carryover basis rules instead.
For estates of decedents dying after 2009, the 2010 Tax Relief Act provides that the estate tax exemption is $5 million (indexed for inflation after 2011) , and the tax is imposed at a flat rate of 35% on all transfers exceeding the exemption amount.
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| Qualified Personal Residence Trusts |
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A special kind of irrevocable trust can be used to transfer your residence to your children at a significantly reduced gift tax cost and with no estate tax, yet allow you to continue to live in the residence for as long as you wish. (You're probably aware that the estate tax has been repealed. However, the repeal is effective only for 2010. The estate tax is scheduled to return in 2011, and may even return before then if Congress reinstates the tax retroactively. ) This special type of trust is known as a qualified personal residence trust (QPRT). (QPRTs are sometimes also referred to as “residence GRITs” or “house GRITs”.) Here's how it works.
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| The Gift Tax Annual Exclusion |
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You may have inquired about the federal gift tax annual exclusion. As I illustrate below, taxpayers can transfer substantial amounts free of gift taxes to their children or other donees through the proper use of this exclusion. (You're probably aware that the estate tax has been repealed for 2010, but is scheduled to return in 2011. However, the gift tax has not been repealed, but continues to remain in effect in 2010 as well as in later years.)
The statutory exclusion amount ($10,000) is adjusted for inflation annually, using 1997 as the base year. The amount of the exclusion for 2010 is $13,000.
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Few people realize that, even though they may have a modest estate, their families may owe hundreds of thousands of dollars in estate taxes because they own a life insurance policy with a substantial death benefit. This is so because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax. (Even though the estate tax has been repealed, the repeal is effective only for 2010. The estate tax is scheduled to return in 2011, and may even return before then if Congress reinstates the tax retroactively.)
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