Tax Returns

An individual's death triggers three distinct Tax Returns:

1) Personal Income Tax Return - form 1040,

2) Estate Tax Return - form 706, and

3) Estate Fiduciary Tax Return - form 1041:



Tax Rates and Estate Tax Exemptions   

For your information below is the Unified Estate Tax Rate Schedule, the list of Estate Tax Exemptions, and the Generation Skipping Tax (GST) Exemptions.

For the year 2010, estates are exempt from Estate Taxes. For the years 2011 and 2012, the Tax Rate is set at the 5,000,000.00 exemption level with the estate being taxed at 35% of the value over the 5,000,000.00 exemption cut off. You pay thirty-five cents on every dollar of estate value over the exemption.

Presently for 2013 and beyond, the Life Time Exemption, now referred to as the 'applicable exclusion amount', has been set at $5,000,000.00, plus a calculation for inflation, which for 2013 totals $5,250,000.00 for each decedent. Any taxable estate above the applicable exclusion is now forty-five percent
(45%) tax on the excess. 

The Federal Estate Tax is an excise tax imposed on the transfer of property from a decedent and is based on the net sum of the decedent's estate, that is, the gross estate value less allowable deductions and adjusted for taxable gifts made after 12/31/1976. The Federal Estate Tax return when required, must be filed within nine months of the decedent's death or an extension must be requested to avoid a serious penalty of five (5%) percent per month. Interest in the amount due is changed and calculated from the beginning of the tenth month after death.

Estate Exemption Per Person and Estate Tax

Calendar Year                                      Exemption                                                          GST Exemption                                       Estate Tax

2001                                                       $650,000.00                                                         $1,060,000.00                                           55%

2002                                                       $1,000,000.00                                                      $1,100,000.00                                           50%

2003                                                       $1,000,000.00                                                      $1,120,000.00                                           49%

2004                                                       $1,500,000.00                                                      $1,500,000.00                                           48%

2005                                                       $1,500,000.00                                                      $1,500,000.00                                           47%

2006                                                       $2,000,000.00                                                      $2,000,000.00                                           46%

2007                                                       $2,000,000.00                                                      $2,000,000.00                                           45%

2008                                                       $2,000,000.00                                                      $2,000,000.00                                           45%

2009                                                       $3,500,000.00                                                      $3,500,000.00                                           45%

2010                                                       Estate Tax Repealed                                            No Death Tax                                            Repealed

2011*                                                     $5,000,000.00                                                      $5,000,000.00                                           35%

2012*                                                     $5,120,000.00                                                      $5,120,000.00                                           35%

2013*                                                     $5,250,000.00                                                      $5,250,000.00                                           45% 

*Special Portable Application - The Estate Tax Exemptions are portable so that when one spouse dies the unused amount can go to the surviving spouse for use at his or her death. The exemptions are now subject to adjustment each year for inflation.

Gift Tax Annual Exclusions and Special Considerations

1) Annual Gift Exclusion per Donee ($14,000.00)

Each individual donor may give any number of recipient donees a tax-free gift of $14,000.00 for the year 2013. The annual exclusion for the years 2004 to 2005 was $11,000.00, for 2006 to 2008 was $12,000.00, and for 2009 to 2012 was $13,000.00.

Each year a couple may double this amount for each donee. To give away more than the annual exclusion each year is to reduce your Lifetime Estate Tax Exemption by that amount. The Lifetime Gift Tax Exemption is $5,250,00.00 for the year 2013 with a forty-five (45%) percent tax, threafter. 

2) Unlimited Marital Deduction for Estate Taxes


Generally, the surviving spouse inherits from the decedent spouse free from Estate Taxes. 

3) Capital Gains and the Stepped-up Basis for Income Tax


Assets passing because of death receive a new stepped-up basis for capital gains purposes. Furthermore, for all community property the surviving spouse's half interest also receives a new stepped-up basis. In other words, for community property the entire asset is given a new stepped-up basis for capital gains treatment. If it is then liquidated for the new value, there would be no Capital Gain Income and therefore no Capital Gain Income Tax due.

A surviving spouse will inherit all estate assets tax-free. An individual estate below the exemption amount shall pass to any heir tax-free. With proper estate planning a couple would be able to shelter twice the exemption amount, set up a gift giving strategy while they are living, and take full advantage of a projected new basis on all community property to shelter their estate from Estate Taxes and possibly future Income Taxes as well. 

Shelter your estate from taxes wherever possible. With proper planning you may be able to shelter your entire estate from Estate Taxes, or at least take full advantage of the Life Time Estate Tax Exemption, the Annual Gift Exclusions, and all other possible deductions and considerations, such as by passing on the current property tax assesment to a child. This would qualify them for the exemption and the reassessment.

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