Estate Tax Laws

Estate tax may apply to your taxable estate at your death. Your taxable estate is your gross estate less allowable deductions.

Gross Estate
Your gross estate includes the value of all property in which you had an interest at the time of death. Your gross estate also will include the following:

Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs;

The value of certain annuities payable to your estate or your heirs; and

The value of certain property you transferred within 3 years before your death.

Taxable Estate
The allowable deductions used in determining your taxable estate include:

Funeral expenses paid out of your estate,

Debts you owed at the time of death,

The marital deduction (generally, the value of the property that passes from your estate to your surviving spouse),

The charitable deduction (generally, the value of the property that passes from your estate to the United States, any state, a political subdivision of a state, or to a qualifying charity for exclusively charitable purposes), and

The state death tax deduction (generally any estate, inheritance, legacy, or succession taxes paid as the result of the decedent's death to any state or the District of Columbia.

More information. For more information on what is included in your gross estate and the allowable deductions, see Form 706 and Form 706-NA and their instructions.

Applying the Unified Credit to Estate Tax
Basically, any unified credit not used to eliminate gift tax can be used to eliminate or reduce estate tax. However, to determine the unified credit used against the estate tax, you must complete Form 706.

Filing an Estate Tax Return
An estate tax return, Form 706, must be filed if the gross estate, plus any adjusted taxable gifts and specific gift tax exemption, is more than the filing requirement for the year of death.

Adjusted taxable gifts is the total of the taxable gifts you made after 1976 that are not included in your gross estate. The specific gift tax exemption applies only to gifts made after September 8, 1976, and before 1977.

Filing requirement. The following table lists the filing requirement for the estate of a decedent dying after 2001.

Year of Death: Filing
Requirement:
2002 and 2003 1,000,000
2004 and 2005 1,500,000
2006, 2007, and 2008 2,000,000
2009 3,500,000

More information. If you think you will have an estate on which tax must be paid, or if your estate will have to file an estate tax return even if no tax will be due, see Publication 559, Form 706, Form 706-NA, and the forms' instructions for more information. You can get publications and forms from the IRS website, which is www.irs.gov. You (or your estate) may want to get a qualified estate tax professional to help with estate tax questions.

Generation-Skipping Transfer Tax
The GST tax may apply to gifts or direct skips occurring at your death to skip persons. The GST tax is calculated on the value of the gift or bequest, after subtraction of any allocated GST exemption, at the maximum estate tax rate for the year involved. Each individual has a GST exemption equal to the applicable exclusion amount for the year involved.

A direct skip is a transfer made during your life or occurring at your death that is:

Subject to the gift or estate tax,

Of an interest in property, and

Made to a skip person.

A skip person is generally a person who is assigned to a generation that is two or more generations below the generation assignment of the donor. For instance, your grandchild will generally be a skip person to you or your spouse. The GST tax is computed on the amount of the gift or bequest transferred to a skip person, after subtraction of any GST exemption allocated to the gift or bequest at the maximum gift and estate tax rates.