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 See Estate Tax Formula
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Updated on 12/12/06

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 2033 – Property owned at death.
 2034 – Dower & curtesy interests.
 2035 – Gift tax paid within 3 years of death and gifts made within 3 years of death under
2036, 2037, 2038, and 2042.
 2036 – Transfers with a retained life interest.
 2037 – Transfers with a reversionary interest.
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Updated on 12/12/06

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 2038 – Revocable transfers.
 2039 – Annuities.
 2040 – Jointly owned property.
 2041 – Powers of appointment.
 2042 – Proceeds of life insurance.
 2044 – QTIP Property.
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Updated on 12/12/06

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 All property in which the decedent had an interest at death
 Examples: cash, stocks, bonds, retirement accounts, autos, clothes, etc.
 Rental income accrued before death.
 Cash surrender value of a life insurance policy owned on the life of another.
 State income tax refunds.
 Medical insurance reimbursements.
 Awards for pain and suffering (but not wrongful death).
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Updated on 12/12/06

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 Replaced by right of spouse to take against will
 No impact today on taxable estate
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Updated on 12/12/06

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 Any gift tax paid within three years.
 Not the actual gifts
 Gifts given within the last three years if the gift was a:
 2036 – transfer with a life estate.
 2037 – transfer taking effect at death.
 2038 – revocable transfer.
 2042 – transfer of life insurance on the life of the decedent.
• Premiums paid on a policy not owned are not included.
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Updated on 12/12/06

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2036 – Transfers with a Retained
Interest
 Property transferred where the decedent retained an interest.
 Express or implied understanding.
 Retained interest for life.
 Transfer home to kids but retain life estate
 Retained interest for period not ascertainable without reference to death.
 Reserved for period that does not end before death.
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Updated on 12/12/06

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2037 – Transfers Taking Effect at Death
 Property transferred where:
 Possession of enjoyment requires the beneficiary to survive the decedent.
 Decedent has retained a reversionary interest.
 Income to spouse, then back to you at spouse’s death
 Value of reversionary interest is > 5%.
• Moment immediately before death…no alternate valuation available.
• Back to you at grandkid’s death, value probably less than 5% so not included in estate
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Updated on 12/12/06

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 Interest subject to the power of the decedent to alter, amend, revoke or terminate.
 Get income from trust for life if don’t wear a Cubs hat
 Also applies to affecting the time or manner of enjoyment of property or income, even if the identity of the beneficiary is not affected.
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Updated on 12/12/06

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 Does not apply if:
 Transfer was for full and adequate consideration,
 Power can only be exercised with the consent of all parties in the transferred property, or
 Power held solely by another person.
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Updated on 12/12/06

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 Straight life annuity – Not included.
 Survivorship annuity – Included.
 For portion of annuity value attributable to decedent’s contributions
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Updated on 12/12/06

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 JTWROS
 Tenancy by the entirety
 Contribution rule
 Spouses: each owns 50%
 Others: 100% in estate unless show contributions by other joint owner
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Updated on 12/12/06

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 General power of appointment
 Can appoint assets to yourself, creditors of your estate so included in estate
 Except if the power is subject to an ascertainable standard.
• Health
• Education
• Maintenance
• Support
• Or exercise of power requires approval of an adverse party
• Or power limited to > 5% or $5,000 not included in estate
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Updated on 12/12/06

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 Proceeds receivable by the decedent’s executor.
 Note: if beneficiary receives the proceeds but is required to remit money to the estate to pay taxes, debts, etc. then value of proceeds is included.
 Decedent possessed an incidence of ownership in the policy.
 Own it or right to: change beneficiary, surrender or cancel policy, assign policy, revoke an assignment, pledge the policy for a loan.
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Updated on 12/12/06

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 Property for which a QTIP election was made in the gross estate of the first-to-die spouse.
 QTIP: generally income for life to spouse, then assets to kids
 Normally wouldn’t qualify for marital deduction as surviving spouse doesn’t control disposition of assets at death
 Since not taxed in estate of first to die; IRS wants inclusion in second to die estate
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Updated on 12/12/06

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 Fair market value at date of death or alternate valuation date (6 months from death)
 Real estate
 Appraisals
 Closely held business
 Valuation discounts
• Minority discount
• Lack of marketability discount
• Blockage discount
• Key person discount
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Updated on 12/12/06

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 Financial Securities
 Average of the High and Low FMV on the trading day
 Accrued Interest – Included in value
 Accrued Dividends – Included in value
 Stock that is not actively traded
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Updated on 12/12/06

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 Life insurance
 Cash surrender value – gifts and policies on others.
 Death proceeds – policies owned on the decedent’s life.
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Updated on 12/12/06

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 6 months after date of death.
 Executor must make the election by the filing date of the estate tax return.
 Election must lower the gross estate and estate tax due.
 Election applies to all assets in gross estate.
 Exceptions
 Wasting assets
 Installment sales, annuities
 Assets disposed of between death and alternate valuation date.
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Updated on 12/12/06

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 Funeral expenses
 Last medical expenses
 Administration expenses
 Debts
 Losses during administration
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Updated on 12/12/06

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 Reasonable expenditures
 Funeral
 Burial plot
 Grave markers
 Transportation of body
 Future care of burial site
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Updated on 12/12/06

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 Costs related to last illness.
 Cannot have been deducted on decedent’s final income tax return.
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Updated on 12/12/06

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 Expenses actually and necessarily incurred in administering the estate.
 Examples are expenses related to
 Collection of assets
 Payment of debts
 Distribution of property
 Attorney and accounting fees
 Appraisal and valuation
© 2007 ME™ (Your Money Education Resource™)
Updated on 12/12/06

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 Debts the decedent was obligated to pay.
 Examples include:
 Outstanding mortgages
 Income Tax due
 Gift Tax due
 Credit Card Debts
 Monthly service providers (gas, electric, phone bills)
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Updated on 12/12/06

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 Casualty and theft losses if not compensated for the loss by insurance.
 Must be incurred during the administration of the estate.
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Updated on 12/12/06

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 Adjusted Gross Estate
 Less Marital deduction – discussed in
Chapter 10
 Less Charitable deduction – discussed in Chapter 9
 Equals Taxable Estate
 Plus Post ‘76 gifts – added back to gross up
 Equals Tentative Tax Base
© 2007 ME™ (Your Money Education Resource™)
Updated on 12/12/06

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 See tax rate schedule
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Updated on 12/12/06

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 Applicable estate tax credit
 Covers $5,340,000 estate in 2014
 Spouse’s unused estate tax credit covering up to an additional $5,340,000 estate can be used by surviving spouse
 Tax rate: 2013:40%
 State death tax credit
 Repealed after 2005
 Prior transfer credit
 Credit for estate taxes paid within the last 10 years
 See credit schedule on page 190
 Foreign death taxes credit – tax paid on property outside the
U.S.
© 2007 ME™ (Your Money Education Resource™)
Updated on 12/12/06

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 Paid by executor or administrator.
 If no executor or administrator, then person in receipt of the property must pay.
 If the executor distributes to heirs before paying tax, then the executor may be personally liable.
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Updated on 12/12/06

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 Return
 Form 706 is due 9 months after death
 Extension to file (but not to pay) can be granted for an additional 6 months
 Penalties
 Failure to file - 5% per month up to 25%
 Failure to pay - 0.5% per month up to
25%
 Failure to file is reduced by failure to pay
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Updated on 12/12/06

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 Basis = FMV at death or alternate valuation date
 Except:
 Gifts that revert back to the original owner that were transferred one year before death
 JTWROS
 Community property
 IRD
 Holding period = long term
© 2007 ME™ (Your Money Education Resource™)
Updated on 12/12/06