FAQs about Estate Taxes

November 30, 2021 Posted In Estate Planning,Estate Taxes,Firm News


Our Denver estate planning lawyers answer some common questions about estate tax liabilities and issues.

The taxability of an estate in 2021 can be confusing and difficult to navigate as the administrator of the estate.  Our Denver estate planning lawyers can help you avoid some or all of your estate tax obligations using traditional and innovative estate planning tools, and our Denver probate lawyers can assist you in determining if an estate is taxable and better understand the estate’s tax liabilities, starting with these answers to frequently asked questions (FAQs).

Answers about Common Estate Tax Issues

Q: What assets are usually included in an estate for tax purposes?

A: According to the Internal Revenue Service (IRS), the “gross estate” can include probate and non-probate property, such as (but by no means limited to):

  • Cash
  • Real estate
  • Business interest
  • Personal property
  • Stocks and bonds
  • Insurance policies/proceeds.

In calculating the value of the estate, the IRS will use the fair market value of the assets that comprise the estate. This will be used to assess the tax obligations for that estate.  There are multiple dates that the personal representative can choose to value to an estate at, and understanding the consequences of them and the methods for establishing the values is an important part of the personal representative’s job.  Our Denver probate attorneys can make sure you understand the process and obtain the best possible outcome for the estate.

Q: What assets are generally excluded from the estate?

A: The assets that are typically not part of the estate include (but may not be limited to):

  • Property solely owned by the surviving spouse
  • Lifetime gifts or estates which the decedent no longer controls (as of the date of death).

This is an area where our Denver estate planning attorneys can assist you in creating an estate plan that limits which assets are included in your taxable estate on death.  With proper planning, large tax liabilities can be avoided legally.

Q: Are there deductions available for estate taxes?

A: Yes, according to the IRS there are five possible deductions that can be used for estate taxes, with these being the:

  1. Charitable deduction, so long as the property was bestowed to a qualifying charity
  2. Marital deduction, which can be used for the property directly bestowed to a surviving spouse
  3. Deductions for debts, including mortgage debt
  4. Deductions for the costs of administering the estate
  5. Deductions for the losses incurred in the estate administration process.

Q: When are estate taxes due?

A: In general, estate taxes are due to the IRS nine (9) months following the date of death. Extensions can be obtained in some cases; however, the correct estimated estate tax due has to be paid on time in order to obtain an extension.

Q: What if I sold the property I inherited before paying the estate tax?

A: In most cases, this will not greatly impact the estate tax obligation, so long as the property was sold soon after the death, because the IRS will rely on the fair market value of that property to value the estate and assess the tax obligation. The fair market value is not usually going to change that much if the property is pretty quickly sold.

Q: What is and is not included in an estate?

A: It is important to know what assets are included in an estate for tax purposes. This will help you understand your tax filing requirements. In general, probate and non-probate property can both be calculated as part of an estate, including but not limited to:

  • Cash
  • Real estate
  • Investments
  • Stocks and bonds
  • Insurance policies
  • Business ownership
  • Retirement savings
  • Family heirlooms
  • Collectables
  • Vehicles
  • Personal property

The assets that do not have to be involved in the valuation of an estate generally include property or assets owned separately by the surviving spouse and gifts or life estates that the decedent no longer controlled as of the date of death.

Q: Do I have to file an estate tax return?

A: In general, only wealthy estates must pay an estate tax. If the deceased individual died in 2016 and he or she was a U.S. citizen or resident, you must file an estate tax return if the gross estate of the decedent – plus the decedent’s taxable gifts and gift tax exemption – exceeds more in value than the filing threshold in the year that the decedent died. If the individual had assets situated in the U.S., you may also need to file an estate tax return, even if the decedent was not a U.S. resident or citizen. 

The filing thresholds are currently:

  • 2011: $5,000,000
  • 2012: $5,120,000
  • 2013: $5,250,000
  • 2014: $5,340,000
  • 2015: $5,430,000
  • 2016: $5,450,000
  • 2017: $5,490,000
  • 2018: $11,180,000
  • 2019: $11,400,000
  • 2020: $11,580,000
  • 2021: $11,700,000
  • 2022: $12,060,000

If the estate elects to transfer any deceased spousal unused exclusion values to a surviving spouse (what is known as the portability election), you must also file an estate tax return, regardless of the size of the estate. If you qualify as someone who needs to file an estate tax return, you will file Form 706. The purpose of the federal estate tax is to limit the tax breaks that wealthy households get on growing wealth, which otherwise goes untaxed.

Q: What happens to large gifts given now after 2025?

A: In November 2019, the Internal Revenue Service stated that anyone who wished to take advantage of the increased gift tax exclusion that is in effect from 2018 to 2025 through the Tax Cuts and Jobs Act will not face adverse tax liabilities after 2025, when the exclusion amount drops back down to pre-2018 levels. Final IRS regulations clarify that anyone who takes advantage of the increased basic exclusion amount (BEA) can compute its estate tax credit using either the BEA applicable to gifts made during life or applicable on the date of death – whichever is greater.

Q: Can You Get an Extension if You Miss the Due Date for Filing an Estate Tax Return?

A: For the most part, estate taxes are due to the IRS nine months following the date of the decedent’s death. It may be possible to obtain a 6-month extension, however, for a total of 15 months to file. You may be eligible, however, for an additional extension to elect portability of the deceased spousal unused exclusion amount, depending on whether the estate has a filing requirement. 

In basic terms, if you meet the filing threshold independent of the portability election, you will not be eligible for a deadline extension to elect portability. If, however, the value of the gross estate does not meet the filing threshold, you can obtain an extension of your filing time to make a portability election under Revenue Procedure 2017-34.

These are only a few of many frequently asked questions that we receive at Phillips & Blow, PC. For more information about estate planning and tax liabilities, contact us for a free consultation.

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