When is an Estate Tax Return Due?

One of the most common concerns in estate planning is estate taxes.  Indeed, one of the primary goals of estate planning is decreasing or eliminating taxes, as much as possible.  With the current federal estate tax rate at 40%, it is easy to see how taxes can substantially reduce the value of your estate.  An estate tax is required to be paid from any gross estate exceeding $5.34 million.  Many, if not most estates, are not required to pay estate taxes because of the Estate Tax Exemption.  But, if your estate is not exempt, filing a federal estate tax return will be required.  So, when is the return due?

When and how do I file a federal estate tax return?

Everyone is familiar with the April 15^th deadline for filing income tax returns, which is set by statute.  IRS Form 706 is the federal estate tax return, which must be filed within nine (9) months of the decedent’s death.  An executor can receive an automatic 6-month extension of time for filing the return, by submitting IRS Form 4768.  It is important to understand, however, that form 4768 does not extend the time for paying any taxes that are due.

The estate tax exemption

The estate tax exemption amount, in 2014, is $5.34 million.  This means that estate taxes are only assessed on estates where the value exceeds $5.34 million.  This tax exemption is also “portable,” which means that the surviving spouse of a decedent can take advantage of any unused portion of their deceased spouse’s exemption.  The unused amount is then added to their own exemption.  For example, if only $2,300,000 of the husband’s $5,340,000 exemption is used, then the surviving wife can elect to add the husband’s remaining $3,040,000 exemption to her exemption and pass on up to $8,380,000, tax free.

Should a nontaxable estate ever consider filing form 706?

This estate tax is a federal tax.  However, there are some states that also impose a separate estate tax on their residents.  As of January 1, 2005, Arkansas no longer imposes an estate tax.  There may be a situation where, filing an estate tax return is still a good idea, even though the estate is not required to pay any taxes.

One reason is to lock in the date of death for determining the fair market values of the estate assets.  This can be important because, if an estate includes an AB Trust, for example, or if the estate creates a lifetime trust for the benefit of a beneficiary who is not a spouse, it makes settling the estate of the surviving spouse or beneficiary much simpler upon their subsequent death.  Otherwise, the executor may be left trying to determine the fair market value of assets, 20 years after the person from whom the estate was inherited, actually died.  Making that determination would be difficult, to say the least.  Consult with an estate planning attorney as soon as possible to determine what is required in your particular situation.

If you have questions regarding estate taxes, or any other estate planning needs, please contact Wilcox Attorneys, PA online, or by calling us at (479) 443-0062.