What is a Final Estate Tax Return?

Upon the death of an individual, the executor or representative of the estate files a Final Estate Tax Return. This is a tax form that shows the value of all the decedent’s assets. This includes real estate, bank accounts, stocks and bonds, closely held investments, insurance, and retirement plans.

A person can file an estate tax return only if their estate exceeds the applicable estate exemption in the year of death, which is 11.7 million dollars for 2021. This exemption is based on the gross asset value of the deceased at death and lifetime gifts.

There is a lot of estate tax law out there so this is a very complicated process to understand, but it’s important to know the basics. This will help you to make the right decisions for your family or business.

The estate tax return is the same for the executor or a person acting in a fiduciary capacity as it is for the deceased. Generally, they only file the one final return for the year of death, but in some cases, an executor may need to file additional returns.

This is a very important return because it will show the amount of tax that the family or business must pay. The final return will also show if there is any refund owed by the IRS to the deceased.

If the final estate tax return shows that a decedent is owed a refund, the executor or representative will claim it using IRS Form 1310, known formally as the Statement of a Person Claiming Refund Due a Deceased Taxpayer. The executor or representative must submit this return and a copy of the official death certificate to the IRS for processing.

In some cases, the CRA will cancel penalties or interest if you file a late return for a reason that is beyond your control. You can ask for this to happen by completing Form RC4288, Request for Taxpayer Relief: Cancel or Waive Penalties or Interest or by including a letter with the return explaining why you filed late.

Report all investment income the deceased received from January 1 to the date of death. This can include dividends (line 12000), interest, and other income such as rental properties.

It is important to report these amounts on the final return if they are not already reported on T4A slips or T3 slips, even if there is no other taxable income in the estate. It is also helpful to attach a copy of any documents that allowed a change in the amount of income reported on the T4A slip or T3 slip.

RRSPs, CPP or QPP benefits, and employment pensions are among the many types of retirement plans that can have a huge impact on an individual’s income in the year of death. The estate can save a lot of money by reporting these amounts on the final return.

The surviving spouse or common-law partner can choose to treat these benefits as being paid to them instead of to the deceased. If so, both the surviving spouse or common-law partner and the legal representative must elect in writing to do this.

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