WHAT IS AN "ESTATE"?
An "estate" consists of all the property owned
by a person. An estate can include such property as:
1. Real property and things attached to it (houses, buildings,
barns, etc.)
2. All personal property (including automobiles, bank accounts,
stocks and bonds, cash on hand, furniture and furnishings,
jewelry, art, collections, retirement plan benefits, etc.)
3. All businesses and business property (sole proprietorships,
partnerships, corporations, joint ventures, and their goodwill,
inventory, tools and equipment, accounts receivable, and
other business property, etc.)
4. Powers of appointment (the right to direct the disposition
of property upon the death of another)
5. All debts and obligations owed to others.
WHEN DOES AN ESTATE BECOME A TAXABLE ENTITY?
An estate becomes a taxable entity (just like a business
or an individual) with the death of an individual and continues
to exist until all the assets are disbursed to its heirs.
Your personal representative will file tax returns for the
estate (Form 706) to show estate assets and an estate income
tax return (Form 1041) to report any income generated by
the estate.
Before the tax is calculated, your gross estate of money,
real property and other assets you had an interest in at
the time of death, less the charitable and marital deductions,
estate administration expenses, and other allowable deductions
are tallied by the IRS to figure your taxable (net) estate.
Various credits are subtracted to determine the estate tax
due.
What assets are included in your gross estate and how much
each item is worth is closely scrutinized by the IRS and
often is the source of irritating squabbles between the
estate and the IRS.
WHAT EXACTLY IS THE ESTATE TAX?
All property (and certain powers) that a person has at
the time of his/her death is subject to tax. You've heard
the saying that, "the only thing certain in life is
death and taxes,"-well, it's not certain but if it
wasn't taken away from you by tax during your life it can
be taxed at your death and taken from your estate. The estate
tax is payable by your estate - it is usually paid by the
estate of the decedent before property is distributed to
the beneficiaries of the estate. Barring an extension, the
estate tax is due within nine (9) months after your death.
The unlimited marital deduction, qualified charitable organization
deduction, and unified transfer tax credit enables most
estates to be distributed without incurring any federal
estate tax. In addition, there are many ways in which you
can structure your estate to take advantage of available
exclusions, exemptions, credits and deductions so that the
tax bite is reduced. |
