An Estate Tax Return is a document that serves as an accounting record of the decedent’s final estates. There are two returns: a finalitable and a revocable. A final estate is one in which there are no trust and no living trust. A revocable estate is one in which there is a living trust. These two types of returns must be filed for both the federal and state taxes. If the estate is under a power of attorney or to a specific party, it may not need to be filed.
As part of his or her final estate tax return responsibilities, an executor or administrator is responsible for preparing the decedent’s final estate tax return and distributing the funds to the beneficiaries on behalf of the decedent. The executor or administrator is also responsible for filing a timely tax return to the IRS for the year of death and for each of the preceding five taxation years. The executor or administrator is required to include a return that is notarized and signed by him or her. The returns must be submitted on state-approved forms. In some cases, where a personal representative is selected, the state tax authority will assist the individual with completing the returns.
If there are children or other dependents, their names must be specified on the final estate tax return. The debts of the decedent and any surviving spouse are also listed. Debts are those incurred prior to death, but include any debt acquired while living away from the decedent. They include any mortgage, promissory note, deed of trust, loan or other secured indebtedness of the decedent’s estate. They also include expenses the decedent had not previously included on the estate tax return, like the payment of outstanding student loans.
In some cases, the final estate tax return will also include a trust tax return. A trust is an asset created by the decedent to hold property or assets for his or her future needs. A trust can be established by a legal proceeding or can be simply an endowment. When establishing a trust, remember that assets do not have to be held in the name of someone else. In some cases, if the beneficiary dies before the assets can be distributed, a trust tax return can be prepared by using the decedent’s Social Security number.
Any final estate assets that are payable to a beneficiary are reflected on the final estate tax return. Some examples include the mortgage payment and any payments to vendors. These are usually mentioned in the statement of assets, but may also be stated in the statement of final estates. The federal estate tax law allows a beneficiary to pay the tax liability on his or her own, in addition to or in place of making payments to the estate.
The state inheritance tax law may also require an individual to file a final estate tax return showing the state taxes, if any, paid and distribution of the remaining assets. However, in some states, the assets must be sold to pay these taxes. Another example is if the beneficiary is under the age of 70 and receives an annuity, the payments may not exceed the lifetime allotment provided under the policy. This is often called the Life Insurance Quotation System. Also included in the final estate tax return are gifts received from legitimate charities.