Estate Tax

Estate tax may apply to your taxable estate at your death. Your taxable estate is your gross estate less allowable deductions.

Any unified credit not used against your gift tax is available for use against your estate tax.

Gross Estate

Your gross estate includes the value of all property in which you had an interest at the time of death. Your gross estate will also include:

1. Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs,
2. The value of certain annuities payable to your estate or your heirs, and
3. The value of certain property you transferred within 3 years before your death.

Taxable Estate

The allowable deductions used in determining your taxable estate include:

1. Funeral expenses paid out of your estate,
2. Debts you owed at the time of death, and
3. The marital deduction (generally, the value of the property that passes from your estate to your surviving spouse).

More information. For more information on what is included in your gross estate and the allowable deductions, get Form 706 and its instructions.

Applying the Unified Credit to Estate Tax

As explained earlier, any of the unified credit not used to eliminate gift tax can be used to eliminate or reduce estate tax.

Example. Ed Beech gave his son John $100,000 in 1998. This was Ed's first taxable gift. Ed filed a gift tax return. He subtracted the $10,000 annual exclusion and figured the gift tax on his taxable gift of $90,000. The gift tax was $21,000. Ed used $21,000 of the unified credit to eliminate the tax on the gift.

If Ed made no other taxable gifts and died in 1999, the available unified credit that can be used against his estate tax is $190,300. This is the unified credit for 1999 ($211,300) less the unified credit used against the gift tax ($21,000).

Filing an Estate Tax Return

An estate tax return, Form 706, must be filed if the gross estate, plus any adjusted taxable gifts and specific gift tax exemption, is more than the filing requirement for the year of death.

Adjusted taxable gifts is the total of the taxable gifts you made after 1976 that are not included in your gross estate. The specific gift tax exemption applies only to gifts made after September 8, 1976, and before 1977.

Filing requirement. The following table lists the filing requirement for the estate of a decedent dying after 1997. Previously, the amount was $600,000.

Example. Donna died in 1998. Her gross estate was worth $1,325,000. She left a total of $625,000 to her children and the remainder, $700,000, to her husband, Bill. The amount that passed to her husband qualified for the marital deduction and, therefore, was not included in the taxable estate. The taxable estate was $625,000. Neither Bill nor Donna had ever made a taxable gift.

An estate tax return had to be filed because the gross estate was more than $625,000. However, because Donna's taxable estate was not more than $625,000, Donna's unified credit eliminated all of the estate tax.

More information. If you think you will have an estate on which the tax must be paid, or if your estate will have to file an estate tax return even if no tax will be due, get Form 706 and its instructions for more information. You (or your estate) may want to get a qualified estate tax professional to help with estate tax questions.

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