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Frequently Asked Questions on New Tax Rules for Executors

Congress made several changes to Estate and Gift tax laws in 2010 that may affect the estates of people who died in 2010 and beyond. We've posted the most common questions and answers below to help you. However, the laws on Estate and Gift taxes are considered to be some of the most complicated in the Internal Revenue Code. For further guidance, we strongly recommend that you visit with an estate tax practitioner (attorney or CPA) who has considerable experience in this field.

Estate, Gift and Generation-Skipping Transfer Tax Questions

Basis Questions For Decedents who Died in 2010 and whose Executors Elect Out of the Estate Tax

Miscellaneous

Estate, Gift and Generation-Skipping Transfer Tax Questions

Was the estate tax retroactively reinstated for decedents dying in 2010?
Yes
. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) reinstated the estate tax for decedents dying after December 31, 2009. However, the 2010 Tax Relief Act increases the applicable exclusion amount to $5 million (up from $3.5 million for decedents dying in 2009). The 2010 Tax Relief Act also reduces the maximum tax rate for estates to 35 percent (down from 45 percent for decedents dying in 2009). Also, the 2010 Tax Relief Act allows executors of the estates of decedents dying in 2010 to elect out of the estate tax system and use the new carryover basis rules enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001.

Is the gift tax still applicable for gifts made during 2010?
Yes
. The applicable exclusion amount for gifts made in 2010 is $1 million and the maximum tax rate is 35 percent. Furthermore, the 2010 Tax Relief Act repeals IRC Section 2511(c), which was applicable only for 2010 gifts under the Economic Growth and Tax Relief Reconciliation Act of 2001.

Was the generation-skipping transfer (GST) tax retroactively reinstated in 2010?
Yes
. The 2010 Tax Relief Act retroactively reinstates the GST tax for transfers made in 2010; however, the applicable exclusion amount is increased to $5 million (up from $3.5 million for 2009 transfers) and the tax rate for 2010 is zero.

Should I file Form 706 for a decedent who died in 2010?
Yes
, if the gross estate, plus adjusted taxable gifts and specific exemption exceeds $5 million. If, however, the executor elects out of the estate tax and elects to apply the new carryover basis rules enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001, then a Form 706 should not be filed. The Form 706 for estates of decedents dying in 2010 was revised July 2011 and published August 2011.

What is the due date for Form 706 for a decedent dying in 2010?
The due date for Form 706 for 2010 estates of decedents who died after December 31, 2009, and before December 17, 2010, is September 19, 2011. For decedents who died on or after December 17, 2010, the due date is nine months after the date of death.

Can I get an extension for filing Form 706 for a decedent dying 2010?
Pursuant to Notice 2011-76, the IRS will grant the executor of a 2010 decedent an automatic six-month extension of time to file Form 706, and a six-month extension of time to pay the estate tax. The executor must file a Form 4768 by the due date for filing the Form 706. The executor is not required to substantiate on the Form 4768 the reason for requesting an extension of time for payment of the estate tax to receive the six-month extension of time to pay the estate tax due. However, interest will accrue on the estate tax liability from the due date of the return, excluding extensions. See I.R.C. § 6601.

The automatic six-month extension under Notice 2011-76 is also available to executors of decedents who are nonresident, noncitizens of the United States, who are required to file a Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return. The executor must file a Form 4768 by the due date for the filing of the Form 706-NA. The executor is not required to substantiate on the Form 4768 the reason for requesting an extension of time for payment of the estate tax to receive the six-month extension of time to pay the estate tax due. However, interest will accrue on the estate tax liability from the due date of the return, excluding extensions. See I.R.C. § 6601.

Should I file Form 709 for gifts I made in 2010?
Yes
, if you made gifts that are subject to the gift tax. For more information, please contact your tax adviser.

Is there an estate tax for estates of decedents who die in 2011 and 2012?
Yes
. Under current legislation, the estate tax is applicable for 2011 and 2012 decedents' estates.

What is the applicable exclusion amount for 2010?
Under current legislation, the applicable exclusion amount for estates and generation-skipping transfers is $5 million. The applicable exclusion amount for gifts is $1 million.

What is the basic exclusion amount for 2011?
The basic exclusion amount for 2011 is $5,000,000.

What is the basic exclusion amount for 2012?
The basic exclusion amount for 2012 is $5,120,000.

What is the basic exclusion amount for 2013?
The basic exclusion amount for 2013 is $5,250,000

What is the basic exclusion amount for 2014?
The basic exclusion amount for 2014 is $5,340,000

What will happen to the estate, gift, and generation-skipping transfer taxes after 2012?
The provisions of the 2010 Tax Relief Act sunset December 31, 2012. Therefore, under current law, the applicable exclusion amount will return to $1 million and the maximum tax rate will return to 55 percent.

The decedent died in 2010 and was the beneficiary of a Qualified Domestic Trust ("QDOT"). Is the property remaining in the QDOT subject to estate tax?
Yes, unless the executor elects to apply the new carryover basis rules instead of the estate tax. 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, plus adjusted taxable gifts and specific exemption exceeds the applicable exclusion amount for the year of death. The 2010 Tax Relief Act does not change the estate tax for the estates of decedents who died before January 1, 2010; therefore, an estate tax return must 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 if I am electing to use the new carryover basis rules, rather than be subject to the estate tax?
You need to contact your tax adviser or your state's tax department to ascertain your state's filing requirements.

Basis Questions For Decedents who Died in 2010 and whose Executors Elect Out of the Estate Tax

How do I calculate the basis of property acquired from a decedent who died in 2010 and whose executor elects out of the estate tax?
For the estates of decedents dying after December 31, 2009, and before January 1, 2011, the executor may elect out of the estate tax system and use the new carryover basis rules under the Economic Growth and Tax Relief Reconciliation Act of 2001. Under that act, a recipient's basis in property acquired from the decedent who died in 2010 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 property owned by the decedent at death (but not more than the property's fair market value); and
  • The executor can also allocate an additional amount, up to $3 million, to increase the basis of property passing to a surviving spouse, either outright or in a Qualified Terminable Interest Property trust (but not more than the property's fair market value).

All of the decedent's property was held by a revocable (or living) trust. Can the basis of that property be increased as well if the decedent died in 2010 and I elect out of the estate tax?
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 if the decedent died in 2010 and I elect out of the estate tax?
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 if the decedent died in 2010 and I elect out of the estate tax?
Yes
. Generally, the surviving spouse's one-half share of community property is treated as owned by and acquired from the decedent for purposes of the basis adjustment rules. For more information, you should consult your tax adviser.

What is the due date for the form allocating the allowable basis adjustment?
Notice 2011-76 changed the due date to January 17, 2012. 

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 additional legislation is enacted regarding estate, gift and GST taxes, the IRS will assess the effect of such legislation and provide guidance to taxpayers regarding their tax obligations and filing requirements.

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


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Page Last Reviewed or Updated: 24-Oct-2014