One of the main goals of estate planning is to decrease, or eliminate if possible, the amount of estate taxes that must be paid upon death. This goal is easy to understand, since the current federal tax rate is 40%. Unless your estate is exempt, filing a federal estate tax return is required. But, when is an estate tax return due?
What is the estate tax?
Estate taxes must be paid whenever you transfer property upon your death. Put another way, you have a right to transfer your property at your death, but you have to pay the federal government for exercising that right. The fair market value of everything you own or have a particular interest in, at the time of your death, is calculated as your “gross estate.” It does not matter what you paid for the items or what the value may have been when you first acquired them.
Estate tax return deadline
The April 15thdeadline for filing income tax returns does not apply to estate tax returns. Instead, the federal estate tax return (IRS Form 706) must be filed within nine months of the person’s death.
A six month extension of time to file the return can be requested. However, extending the time for filing does not extend the time for paying the tax that is due. The request for an extension must be made prior to the deadline and the estimated amount of tax must be paid before the due date.
Is there any property excluded from the Estate?
An individual’s gross estate typically does not include any property owned by the decedent’s spouse or another individual. Lifetime gifts, where no power or control over the gift is retained by the giver, are not included. However, taxable gifts are used in the computation of the estate tax.
Most estates are exempt from estate taxes
Generally, simple estates which consist primarily of cash, publicly traded securities, and small amount of easily valued assets do not require filing an estate tax return. That is due to the estate tax exemption. In 2015, only estate with combined gross assets that exceed $5,430,000 are required to file an estate tax return.
Make sure you don’t have to pay a state imposed tax
The estate tax we have been discussing is imposed by the federal government. However, a few states also impose a separate estate tax on their residents. As of January 1, 2005, neither Arkansas nor Missouri imposes an estate tax. There can be situations where, filing an estate tax return is still a good idea, even when the estate is not required by law to pay any taxes. Discuss the advantages of filing an estate tax return with your attorney.
If you have questions regarding estate taxes, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.