Estate, Gift and Generation-Skipping Transfer Tax Questions

PROVIDED BY THE INTERNAL REVENUE SERVICE

Is the estate tax repealed for decedents dying in 2010?
Yes. Title V of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) repeals the estate tax for decedents dying after December 31, 2009 and before January 1, 2011.

Is the gift tax repealed for gifts made during 2010?
No. Title V of EGTRRA does not repeal the gift tax for 2010. However, the maximum gift tax rate for taxable gifts is reduced from 45% to 35% for gifts made in 2010.  Furthermore, EGTRRA broadened the application of the gift tax by treating certain transfers in trust as transfers of property by gift.

For more information, you should consult your tax adviser or go to the IRS Web site. Key words: “Notice 2010-19.”

Is the generation-skipping transfer (GST) tax repealed in 2010?
Yes. Title V of EGTRRA repeals the generation-skipping transfer (“GST”) tax on direct skips, taxable terminations, or taxable distributions occurring after December 31, 2009 and before January 1, 2011.

Should I file a Form 706 for a decedent who died in 2010?
No. Because the estate tax is repealed for decedents dying in 2010, no estate tax is due and there is no need to file a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.  IRC §6018 no longer requires the filing of an estate tax return.  In addition, the most recent revision of Form 706, dated 09-2009, is applicable only to decedents dying after December 31, 2008 and before January 1, 2010.  There is no Form 706 for decedents dying after December 31, 2009.

What happens if I file a Form 706 for a decedent who died in 2010?
If you file a Form 706 for a decedent dying in 2010, the IRS will not accept the return and it will be sent back to you.

Should I file a Form 709 for gifts I made in 2010?
Yes, if you made gifts that are subject to the gift tax.

Because the gift tax was not repealed, donors should continue to file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, to report gifts made in 2010.

For more information, please contact your tax adviser.

Will the estate tax return in 2011?
Yes. Under current legislation, the estate tax repeal will “sunset”, effective January 1, 2011.  Therefore, the estate tax is applicable to decedents dying after December 31, 2010.

What are the exemption amounts and tax rates for 2011?
Under current legislation, the exemption amount for estates and gifts is $1 million. For GST transfers, the exemption amount is $1 million with an inflation adjustment.

Under current legislation, the maximum rate for estate, gift, and GST tax is 55%, with a surtax for estate and gift transfers between $10 million and $17,184,000.

Will Congress retroactively reinstate the estate tax for decedents dying in 2010?
We do not know. If legislation is enacted regarding the estate tax, the IRS will act swiftly to assess the impact of such legislation and provide guidance to taxpayers regarding their tax obligations and filing requirements.

Will Congress change the exemption amount and rates for 2011?
We do not know. If legislation is enacted regarding the estate, gift or GST tax, the IRS will act swiftly to assess the impact of such legislation and provide guidance to taxpayers regarding their tax obligations and filing requirements.

The decedent was the beneficiary of a Qualified Domestic Trust (“QDOT”).  Is the property remaining in the QDOT subject to estate tax?
Maybe. Title V of EGTRRA provides, with respect to the surviving spouse of a decedent dying before January 1, 2010, that the estate tax will not apply to property remaining in a Qualified Domestic Trust (“QDOT”) on the surviving spouse’s date of the death if the surviving spouse dies after December 31, 2009.  Title V also provides that the estate tax will not apply to distributions from QDOTs after December 31, 2020.  Both of these provisions will sunset, however, and will no longer be applicable beginning January 1, 2011.

For more information, you should consult your tax adviser.

The decedent died before January 1, 2010.  Do I still need to file an estate tax return?
Yes, if the gross estate exceeds the applicable exemption amount for the year of death.

The estate tax is not repealed for the estates of decedents who died before January 1, 2010; therefore, an estate tax return will still need to be filed for those estates.

For more information, please contact your tax adviser.

I need to file a State estate (or inheritance) tax return for 2010 and the state needs a copy of my Federal Form 706. What should I do?
Because there is no Federal estate tax for 2010, there is no Form 706 for decedents dying after December 31, 2009.  You need to contact your tax adviser or your state’s tax department to ascertain your state’s filing requirements.

Basis Questions

How do I calculate the basis of a decedent’s assets who died in 2010?
Generally, for the estates of decedents dying after December 31, 2009 and before January 1, 2011, the basis of assets acquired from the decedent is the lesser of the decedent’s adjusted basis (carryover basis) or the fair market value of the property on the date of the decedent’s death.

However, there are two exceptions to this general rule:

  • The executor can allocate up to $1.3 million (increased by unused losses and loss carryovers) ($60,000 in the case of a decedent nonresident not a citizen of the United States, but with no loss or loss carryover increase) to increase the basis of assets; and
  • The executor can also allocate an additional amount, up to $3 million, to increase the basis of assets passing to a surviving spouse, either outright or in a Qualified Terminable Interest Property (“QTIP”) trust.

All of the decedent’s property was held by a revocable (or living) trust.  Can the basis of that property be increased as well?
Probably yes. The decedent is treated as owning property transferred by the decedent during life to a qualified revocable trust (as defined in section 645(b)(1)).

You should consult your tax adviser to determine if the trust is a qualified revocable trust.

The decedent had a power of appointment over property at the time of death.  Can the basis of that property be increased as well?
No. The decedent is not treated as owning any property by reason of holding a power of appointment with respect to such property.

For more information, you should consult your tax adviser.

The decedent lived in a community property state. Are there special rules for calculating the basis of community property?
Yes. Generally, the surviving spouse’s one-half share of community property is treated as owned by the decedent for purposes of the basis adjustment rules.

For more information, you should consult your tax adviser.

Are there any filing requirements for a decedent who died in 2010?
Yes. Current legislation requires the executor of an estate to file the following tax returns:

  1. The final income tax return (Form 1040) for the decedent;
  2. Fiduciary income tax returns (Form 1041) for the estate during administration; and
  3. A return allocating the allowable basis adjustment to property acquired from a decedent, if the fair market value of the property exceeds $1.3 million or if the decedent acquired property by gift, except in certain cases.
  4. No later than 30 days after the filing of the return allocating the allowable basis adjustment, a written statement to each recipient of property that contains the information on the return.

For more information, you should consult your tax adviser.

What is the due date for the tax return allocating the allowable basis adjustment?
The form allocating the allowable basis adjustment must be submitted by the executor with the decedent’s final income tax return.  For decedents dying in 2010, the due date is Friday, April 15, 2011.

What if the assets acquired from the decedent have a fair market value of less than $1.3 million? Does the executor need to file a return allocating the basis adjustment?
Maybe. The return allocating the basis adjustment is required only if the property acquired from the decedent is in excess of $1.3 million or if the decedent acquired property by gift, except in the case of certain gifts from decedent’s spouse, during the 3-year period ending on the date of the decedent’s death and the donor was otherwise required to file a return to report the gift.

For more information, you should consult your tax adviser.

What is the form number for the return used to allocate the allowable basis adjustment and where can I obtain it?
A form to allocate the allowable basis adjustment due by the executor is currently under construction, and a number has not yet been assigned.

When the return form is completed, it will be posted at the IRS Web site.

Miscellaneous

What is the IRS doing to prepare for the tax law changes?
We are monitoring the current state of the estate, gift and GST tax law and proposed changes in Congress.   If legislation is enacted regarding the estate, gift and GST taxes, the IRS will act swiftly to assess the impact of such legislation and provide guidance to taxpayers regarding their tax obligations and filing requirements.

We are also preparing the return forms for taxpayers to use in the 2011 filing season.

Where can I find more information?
For more information, you should consult your tax adviser.

References/Related Topics