When a person dies, one of the most important tasks that must be accomplished is filing a final estate tax return. However, this task can prove to be daunting and many individuals procrastinate. In most cases, people mistakenly believe that they need to wait until they die to file their taxes. The truth of the matter is that there is really only one deadline for filing your final federal tax return, and that is the due date for the 1040 Form. This form is simply a paper return that must be filed with the IRS by the individual who is deceased.
While the federal estate tax does no apply to most estates, there are instances in which the actual value of the estate is more than expected. One such instance occurs when large monetary gifts are distributed before death. If you are one of these individuals, you may notice that the IRS has sent you a notice that you need to file your final tax returns within a certain amount of time. While it is true that you do not need to file these returns immediately, you should still obtain them as soon as possible, so that if there is an applicable adjustment to your taxes the adjustment will take effect on your final estate tax return.
If you mistakenly believe that the date you filed your initial final estate tax return is the final date for filing your returns, you could experience a problem. Generally speaking, if you stop filling out your forms, the IRS will deem you to be in default of your responsibilities and will commence collections against you. Cashing out or selling assets in an attempt to compensate for the back taxes owed could also subject you to further legal action. The best way to prevent these problems from arising is to make sure you file your returns as quickly as possible, and one way to accomplish this is by making sure that all of your beneficiaries are aware of your intent to file.
Some people mistakenly believe that their heirs are not entitled to receive any death benefits from the estate, since the IRS considers the decedent’s estate as a public entity. However, this is simply not true. As long as the decedent’s will not be compromised in any way (such as failing to grant any powers of attorney to its beneficiaries), the property owned by the decedent is treated as if it were a public entity. This includes any death benefits that might be awarded to your heirs under the terms of the estate plan itself. In addition to this, if there are not any beneficiaries, the IRS allows for the distribution of the assets to any person, regardless of whether the proceeds are needed for debt relief or for funeral expenses. As long as the distribution does not infringe upon any other agreements made concerning the assets in question, then it will be awarded to the person who would have been the beneficiary under the terms of the original decedent’s will.
There are several situations where you might have a difficult time figuring out the proper forms to fill out on your final estate tax return. For example, if your final tax returns were sent to you via mail, you will need a certificate of mailing from the post office. If the final tax forms were mailed to you via email, you will need an email ID and password to access the forms on the IRS website. If you received final tax forms by telephone, you will need the contact information for someone who was in touch with you when you signed the return.
Finally, one thing you need to be very careful about when preparing your estate tax returns is the inclusion of Gifts. There are many situations in which a gift is considered to be a taxable benefit, regardless of whether the item was purchased with funds from the estate, or with the proceeds from a lottery draw. One of these situations occurs, if the gift giver lives in a state other than the one for whom the gift is presented. While technically the state of residence of the giver can have an impact on the value of the gift, the IRS has decided that it is not a taxable benefit for the estate tax return. So, if a family presents a tax return that contains a gift as a result of having received a tax deferred through a reservation of future annuity payments, the gift cannot be included in the valuation of the estate. This is one area where it may be advantageous to use an estate planning attorney.
