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When is a Federal Estate Tax Return Required to be Filed?

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NOTE: The information below only applies to the estates of people who died in 2009. For filing requirements for deaths that occurred in 2010, 2011, 2012 or 2013, please refer to the following:

In honor of tax day tomorrow, here is the information necessary to determine if a federal estate tax return, United States Estate (and Generation-Skipping Transfer) Tax Return, or IRS Form 706, must be filed for decedents dying in 2009.

Form 706 must be filed for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $3,500,000. To determine whether a return must be filed, add:

  1. The adjusted taxable gifts (under section 2001(b)) made by the decedent after December 31, 1976;
  2. The total specific exemption allowed under section 2521 (as in effect before its repeal by the Tax Reform Act of 1976) for gifts made by the decedent after September 8, 1976; and
  3. The decedent's gross estate valued at the date of death. (See Instructions for Form 706 for additional information.)

So what this means today is that any gross estate valued at more than $3,500,000 must file a Form 706, even if no federal estate tax will be owed after applicable deductions and tax credits have been applied. And when are the return and payment, if any, due? Nine months after the decedent's date of death - but refer to the link to the instructions for Form 706 with regard to extensions of time to file the return and pay any tax due.

Even so, some estates that aren't required to file a Form 706 should still consider filing one to lock in the date of death fair market values of the estate assets. This includes estates that utilize AB Trust or ABC Trust planning where only the B Trust or B and C Trusts will be funded and estates that create lifetime trusts for nonspouse beneficiaries. Why? Because it will be much easier to settle the estate of the surviving spouse or nonspouse beneficiary when they later die since the starting fair market values and step up in basis of the estate assets wil be clearly stated on the initial decedent's Form 706. Imagine trying to settle the estate of a beneficiary 5, 10, 15 or 20 years after the person who the beneficiary inherited their estate from died. Not fun.

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