Estate Tax planning

As the old saying goes, "The only two sure things in life are death and taxes, and estate tax planning means preparing for both." That's where lawyers and CPAs come in. While attorneys can approach inheritance from a legal perspective and CPAs from an accounting perspective, both play an important role in helping individuals safeguard their estate and assets after death. Now, let's get down to business and talk about taxation. 

In this newsletter, we will respond to some of the most frequently asked questions we receive at our offices that our attorney friends might find useful. 

When should I start planning for inheritance tax? 

It is generally a good idea to start planning for it as early as possible. Estate planning involves taking steps to reduce the amount of tax that may be payable on your estate when you pass away, and this can often take time to implement.  

What is Estate Tax Planning? 

Estate tax planning is the process of determining how to minimize the amount of estate taxes owed on an individual's estate. This often involves transferring assets to trusts or taking advantage of various deductions and credits available in the tax code. 

Can I protect my assets through a trust? 

Of course you can! When you transfer your assets to a trust, you can limit your taxable estate and obtain various income tax and estate planning advantages, such as asset protection and tax savings. There are also different types of trusts that are available depending on your personal situation and are a good tax planning strategy. 

Who must file estate tax returns? 

 For decedents who died during the year, Form 706 must be filed by the executor of the estate of every U.S. citizen or resident: 

• Whose gross estate, plus adjusted taxable gifts and specific exemption, is more than the lifetime gift and estate exemption amount; or 
• Whose executor elects to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, regardless of the size of the decedent's gross estate. 

Your estate tax return should be prepared by an experienced CPA, not just any preparer. 

When Form 706 comes into play: What purpose does it have? 

 The executor of a decedent's estate uses Form 706 to figure out the estate tax imposed by Chapter 11 of the Internal Revenue Code. 

Form 706 must be filed with the IRS regardless of whether other state or federal estate taxes are owed. It is important to understand your legal obligations when it comes to estate taxes and to consult with a qualified tax professional when preparing the form. 

If you have more questions or need the assistance of a CPA, contact us so we can help you. 

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