Estate Tax

The estate tax is tax imposed on the transfer of a “taxable estate” of a deceased person.  The 2001 tax act repealed estate tax for 2010.  However, on December 17, 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Section 301 of the 2010 Act reinstates the federal estate tax and the new law sets the exemption at $5 million per person.  A top tax rate of 35 percent is provided for years 2011 & 2012.   

Generally, an estate tax return (Form 706) must be filed (due nine months after the date of death) if the sum of the decedent’s gross estate plus adjusted lifetime gifts exceeds the exemption equivalent of the estate tax unified credit for the year of the death.   For 2011, the maximum size estate that would not be subject to the filing requirement is $5,000,000.  Estates with amounts over $5,000,000 will be taxed at 35% under the new legislation passed in December 2010.  (The tax is only on the amounts exceeding $5,000,000.)

The estate tax return is typically due nine months after the date of death however an extension to file may be obtained by filing Form 4768.  The extension will be granted for reasonable cause, and the extension is generally for a period not exceeding 12 months from the date fixed for payment of the estate tax and for a period not proceeding six months for filing the return.  A finding of reasonable cause may also permit deferral of payment of estate taxes for reasonable periods up to 10 years.  A showing of cause may be that the executor/executrix is unable to gather liquid assets because of legal difficulties or must sell the assets at a low price in a tough financial market.  The maximum extension is reduced to four years if the tax due is a deficiency.