The passing of a loved one triggers certain deadlines for tax return filing, namely an IRS Form 706 (Estate & Generation Skipping Transfer Tax Return), decedent's final IRS Form 1040 and any IRS Form 1041 for estates and trusts that have, or continue to, generate income.
Whether or not a decedent's estate is in excess of their lifetime estate tax exemption, the timely filing of an IRS 706 return will be the basis for election of "portability" so that the surviving spouse may enjoy the remaining portion of the decedent's estate tax exemption. Likewise, for gifts in excess of the annual gift tax exclusion, or gifting to a trust where value might be in issue, gift tax returns (IRS Form 709) must be timely filed for compliance and to start the statute of limitations on any potential audit. Where there is an issue of "split gifting" familiarity with IRS treatment is critical to avoiding protracted issues with compliance and tax liability.
Every situation requires careful study and handling.
Where an estate or trust is being administered, it is imperative to obtain a "closing letter" from the IRS prior to the final distribution of estate or trust assets. The closing letter is a form letter from the IRS confirming review and acceptance of the IRS Form 706 return. A distribution prior to the closing letter which results in retained assets insufficient to cover an estate tax liability can result in liability to the trustee and limited liability to the beneficiaires.
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