Estate Planning - Federal Estate Tax Exemption Amounts

Upon one's death, there are a number of tax consequences for the executor or administrator to consider.  The most notable is the estate tax, which is based upon the value of one's estate at death.  The value of your estate is based upon the fair market value of all of your assets (your "gross estate"), minus certain allowable deductions and (in special circumstances) reductions in the value of your assets.  Allowable deductions may include mortgages and other debts, estate administration expenses, and property passing to surviving spouses (the "marital deduction") and qualified charities.  Once your "net estate" has been calculated, the value of any lifetime taxable gifts is then added, and the tax is computed.  The tax is then reduced by the unified credit available to you at the time.

Most simple estates do not require the filing of an estate tax return.  However, a filing is required for estates with combined gross assets and prior taxable gifts exceeding $5,000,000 for decedents dying in 2011, $5,120,000 for decedents dying in 2012, and $5,250,000 for decedents dying in 2013.  (The exemption amount is to be "indexed up" in subsequent years, barring any further Congressional changes.)  Keep in mind that the gross estate will most likely include non-probate assets (such as assets that may pass by beneficiary designations) as well as probate assets, and may also include assets held by the decedent in a revocable living trust.

An estate tax return is to be filed within 9 months of the date of death, usually by the executor or his/her successor.  A six-month extension of the due date can be obtained if the estimated tax is paid with a request filed before the due date.  It takes the IRS usually between 4 and 6 months to process the return and provide the estate a closing letter.  This return is in addition to any income tax and gift tax returns that may also need to be filed on behalf of the estate.