Living life to its fullest isn’t always cheap. Unfortunately, neither is dying, particularly if you have a hefty estate. The federal government imposes an estate tax on large estates and with the help from the IRS, they make it a priority to collect. How? IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. While smaller estates usually aren’t required to file this form, unless the surviving spouse wants to preserve the unused portion of the decedent’s estate tax exemption, larger estate are required to file. How large does the estate need to be? As of August of 2015, the threshold is $5,430,000. That means if the estate’s gross value exceeds the threshold, at time of death, Form 706 is required. In that event, here is a short checklist that you and a qualified professional should begin to work through:
  1. Compile a list of all assets and documentation.To make sure the asset
verification process is thorough, contact the family attorney and accountant for any assistance they can provide. Checking with local financial institutions and insurance agents with a request for any information regarding accounts in the decedent’s name, along with the decedents past federal income tax returns may also help verify any assets that need to be listed.
  1. Get good appraisals early. It is important to find an expert who is familiar with
the local real estate and willing to testify on the appraisal field. Be sure that if there are collectibles in the estate, the appraiser involved is an expert in that area. In some cases, such as special use valuation, it may be necessary to obtain two appraisals.
  1. Be aware of audit potential. While you may be tempted to block out the scary
notion of having to deal with an IRS audit, the fact of the matter is that it is a possibility — especially if the estate is large. According to the Internal Revenue Service 2012 Data Book, in the fiscal year 2012 the IS audited 100% of estate tax returns files in 2011 for estate with assets over $10 million. It is a great source of revenue for the IRS.
  1. Make valuations as accurately as possible. There are serious overvaluation
penalties. Take care not to overvalue property just to raise the basis for beneficiaries.       5. Become familiar with state law. Much of the estate tax return must be analyzed in light of state law,, for example, rights to real estate are often governed by state law.
  1. Complete all required schedules.Form 706 is comprised of Schedules A
through U, a continuation schedule, and instructions. Be accurate and review the return to ensure that all applicable schedules have been completed along with the appropriate attachments. Check to see if all signatures have been executed. Certain elections are declared invalid if the appropriate attachments or signatures are omitted. Do yourself a favor and avoid this hassle altogether. It is important to know that the filing requirement doesn’t mean you owe taxes. Once the gross estate’s value is calculated, the IRS allows several deductions to reduce the size of the estate, including bequests to a surviving spouse or charities, as well as debts owed by the decedent. For more information on determining if you are required to file, what deductions are available to you, and how you can be well prepared for the overall filing process, contact the Onisko & Scholz team today at 562-420-3110.