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December 12, 2011

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Question: What is excluded from the Estate?

IRS: Generally, the Gross Estate does not include property owned solely by the decedent's spouse or other individuals. Lifetime gifts that are complete (no powers or other control over the gifts are retained) are not included in the Gross Estate (but taxable gifts are used in the computation of the estate tax). Life estates given to the decedent by others in which the decedent has no further control or power at the date of death are not included.

Question: What deductions are available to reduce the Estate Tax?

IRS: 1. Marital Deduction: One of the primary deductions for married decedents is the Marital Deduction. All property that is included in the gross estate and passes to the surviving spouse is eligible for the marital deduction. The property must pass outright. Certain life estates also may qualify for the marital deduction.

2. Charitable Deduction: If the decedent leaves property to a qualifying charity, it is deductible from the gross estate.

3. Mortgages and Debt.

4. Administration expenses of the estate.

5. Losses during estate administration.

Question: What other information do I need to include with the return?

IRS: See Form 706 (and Instructions) and Publication 950. Among other items listed: Copies of the death certificate; copies of the decedent's will and/or relevant trusts; copies of appraisals; and copies of relevant documents regarding litigation involving the estate documentation of any unusual items shown on the return (partially included assets, losses, near date of death transfers, others).

Question: How does fair market value affect or relate to my family business or farm in this con-text?

IRS: Generally, the fair market value of such interests owned by the decedent can be included in the gross estate at date of death. However, for certain farms operated as a family farm, reductions to these amounts may be available.

In the case of a qualifying Family Farm, IRC 2032A allows a reduction from valuation levels of up to $1,000,000. A similar deduction for a qualifying family owned business (IRC 2057) was revoked beginning in 2004.

--The Editors at Small Business Tax News