There are two different types of final estates that can occur when someone dies: a trust, and a grantor trust. A trust will be established when the decedent has already died, leaving all property and assets in the name of their personal representative. A grantor trust follows a different process. In this case, the trust is not created until later, when the decedent’s agent or attorney to sell the decedent’s assets to pay off the debt, and then establishes the trust.
This includes filing any of the decedent s final estate assets taxes outstanding from past financial years; a specified date of death; and a final estate tax return to be filed by the beneficiaries. If you are the executor or administrator, you will just need to file one of those, or a composite of both as one final estate tax return. If you are not an appointed trustee, then you must appoint a trusted friend or relative to act as such for you. Trustee appointments should be made within six months of the decedent’s death.
For individuals who die during a covered life, such as a spouse or parent, they generally make one final estate tax return and claim the applicable exemption. However, if you also include a spouse or children, they will also have to file their own final returns to the IRS with appropriate forms. This means there is a possibility for double taxation for the decedent’s surviving spouse or children.
The five million estate tax bracket applies to individuals who die within this category. Also excluded is any trust for which the beneficiary was a spouse, parent, grandparent, or child, or some other person who is considered a dependent of the decedent. This exception is very generous and only applies to the first $5 million in value of any gift within this bracket.
If a trust receives a gift of money that exceeds the exemption and the value of the gift is more than the exemption, the gift is subject to the alternative deferred income tax. In addition to the regular income tax, you will receive a further deferred income tax until the gift is disbursed. This means that the income tax is applied to the difference between the value of the gift and the exclusion amount. You can use this as an opportunity to save if you can prove that the amount of the gift exceeded the exemptions.
The five million and ten million income tax brackets apply to inherited property, including real estate, jewelry, and private equity. You will need to file a federal income tax return and a state income tax return for any property or assets that are owned in more than one state. A beneficiary may be entitled to both types of returns but must meet the standard deadline for filing. There are also several exceptions, including gifts to friends or relatives that have not been taken out by an estate and those made under the life insurance or bank retirement plan that provide for future gifts to family members.
