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Income | Gift | Estate| Transfer
Estate Taxes
Estate tax, death tax and inheritance taxes all mean the same thing: taxes due at
your death. The gift tax exclusion, as discussed previously, provides that no tax is
paid on gifts of less than $11,000 a year. In addition to this $11,000 a year amount
you can give away "for free," you also have a unified credit. A unified credit is
applied against the gift tax that is otherwise payable. Each person has a unified
credit of $192,800, which is equivalent to giving away $600,000, tax free. See
IRC Section 2505(A). This unified credit is available for use during your lifetime
or at your death. This means that you can give away $1,500,000 while you're living or
give away $1,500,000 upon your death or any combination thereof. However, if a single
person dies with an estate valued at more than $600,000, then the estate taxes will
be due on all amounts in excess of $1,500,000.
Estate taxes are due and payable upon the death of the decedent. The check must be
sent to the IRS within 9 months. (There are exceptions for family farms and
businesses.) Once a determination is made as to the value of the decedent's
gross estate it is then reduced by all allowable deductions and increased by the
decedent's adjusted taxable gifts. The gross estate consists of all the decedent's
property, both real and personal, wherever situated, nationally or internationally.
Once the value of the taxable estate, less deductions, has been determined, the
net amount will be used to figure out how much, if any, inheritance tax is due
to the IRS. Depending upon the state in which you live, this amount will also be
used to determine how much state inheritance tax is due. Under Florida law, for
all practical purposes, there is no state inheritance tax due on most estates.
In other states, however, state death taxes are a major consideration and expense.
(See chart listing estate inheritance taxes in Appendix to this chapter.)
- Examples of Assets considered for Inheritance Taxes
- Lifetime transfers of property by a decedent who retained the right for life
to revoke, alter or amend the transfer will be included in the decedent's gross
estate.
- The full present value of all amounts that will be paid to a beneficiary or
beneficiaries from retirement plans or individual retirement accounts as result
of the death of the employee/decedent is included in the decedent's gross estate.
- The full value of property owned by the decedent and one or more other
persons as joint tenants with rights of survivorship generally is included in
the decedent's gross estate.
- The gross estate includes the value of all proceeds from life insurance
policies on the decedent's life that are receivable by the executor
(Personal Respresentative) of the decedent's estate or for the benefit of
the decedent's estate.
- IRC Section 2042 also requires inclusion of the proceeds of life insurance
payable to named beneficiaries other than the executor of the estate if the
decedent held any incidents of ownership in the policy at the time of death.
Incidents of ownership include the power to change the beneficiary, the power
to borrow against the policy, the power to surrender or cancel it, the power
to pledge it for a loan, or any other right to economic benefits of the policy.
- Any existing life insurance policies that are transferred from the owner
to an Irrevocable Life Insurance Trust to be excluded from the estate will be
included in the gross estate if the owner dies within three years of the transfer.
See IRC Section 2035.
- A decedent's gross estate also includes property over which the decedent
held a general power of appointment at death.
- Deductions to reduce Taxable Value of Gross Estate
The deductions that can be taken against the gross
estate are as follows:
- Funeral expenses.
- Administration expenses that include personal representative fees, an
attorney's fees and other expenses necessarily incurred in the administration
of the decedent's estate.
- All just debts and claims made against the estate.
- Last medical expenses.
- Charitable deductions.
If a decedent's taxable estate (gross estate reduced by all allowable deductions
and increased by any taxable gifts and gift tax paid within three years of death)
does not exceed $1,500,000, there is no federal estate tax payable. If the gross estate
exceeds $600,000, however, even if it is reduced through the use of allowable
deductions to below $1,500,000, a gift tax return must be filed. This gift tax return
must be filed within nine months of the decedent's date of death. The date of
filing the estate tax return can be extended for up to six months by showing good
and sufficient cause as to why the return cannot be filed on or before the due date.
If an estate, after deductions, has a value of more than $600,000, estate taxes
will be payable according to the following schedule. (See Federal Estate and Gift
Tax Rate Schedule at the end of this chapter.)
- Estate Taxation of Non-Resident Aliens
If a United States citizen or resident alien dies leaving a
taxable estate of less than $1,500,000, there will be no inheritance tax due. If,
however, a nonresident alien is married to a U.S. citizen and dies in the United
States leaving a taxable estate in excess of $1,500,000 then there will be inheritance
taxes due. Only assets of the nonresident alien that have a domicile in the
United States at the time of the nonresident alien's death are included in the
taxable gross estate for U.S. estate tax purposes. If the nonresident alien's
surviving spouse is a U.S. citizen, the nonresident alien's estate is entitled
to the same unlimited estate tax deduction available to U.S. citizens and resident
aliens. If the surviving spouse of the nonresident alien decedent is not a U.S.
citizen, no federal estate tax marital deduction is available to a spouse for
property passing from the decedent unless the property is placed in a Qualified
Domestic Trust, (Q-DOT Trust.) (See IRC Section 2106 (a)(3)(2056)(d) and Chapter 7
for further information on Q-DOT Trusts).
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