What Do I File with the IRS If I Am the Executor of an Estate?

When a loved one passes away, a family member or close friend is usually named as the Executor of the decedent’s estate in the decedent’s Last Will and Testament. Managing the practical duties involved in administering an estate with simultaneously grieving the loss of a loved one can be challenging. If you are in this position, one of your important responsibilities as Executor will be to make sure the estate pays any federal gift and estate taxes due. To help you get started, a Grand Forks probate attorney at German Law explains what needs to be filed with the Internal Revenue Service by the Executor when administering an estate.

Probate Basics

Probate is the name given to the legal process involved in administrating the estate of a decedent. If the decedent left behind a valid Last Will and Testament, the person named as the Executor in that Will is responsible for administering the estate. The Executor has a wide variety of duties and responsibilities during probate. Among those responsibilities is calculating and paying any federal gift and estate taxes owed by the estate.

Federal Gift and Estate Taxes

The federal gift and estate tax is a federal tax on the transfer of wealth paid at the time of the death of a taxpayer. The tax applies to the value of the estate at the time of death plus the value of all qualifying lifetime gifts. While there are some exclusions, most gifts are subject to the federal gift tax. The rate of the federal gift and estate tax is 40 percent; however, a taxpayer is entitled to take advantage of the lifetime exemption to reduce the amount of taxes owed. The American Taxpayer Relief Act of 2012 (ATRA) set the lifetime exemption amount at $5 million, to be adjusted annually for inflation. In 2018, however, tax legislation was signed into law that changed the lifetime exemption amount for 2018 and for several years thereafter. Those exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. As of 2022, the individual lifetime exemption amount is $12.05 million.

Federal Gift and Estate Tax Forms

If you are the Executor of an estate you will use IRS Form 706 or 706GS(D) to calculate estate tax owed, according to Chapter 11 of the Internal Revenue Code (IRC), and to calculate the generation-skipping transfer (GST) tax imposed by Chapter 13 of the IRC. A Form 706 must be filed on behalf of a deceased U.S. citizen or resident whose gross estate, adjusted taxable gifts, and specific exemptions exceed the applicable lifetime exemption. A Form 706 is also required if the Executor elects to transfer the “deceased spousal unused exclusion” (DSUE) amount (commonly known as electing “portability”) to the surviving spouse, regardless of the size of the decedent’s gross estate. Form 706-NA is used to calculate estate and GST tax liability for decedents who were classified as “non-resident aliens.” Form 706-GS(D) is used to calculate taxes due on trust distributions subject to the generation-skipping transfer tax.

How Do I Calculate Value of the Estate to Determine Tax Liability?

Determining what assets are included when calculating a decedent’s estate value can be tricky if the decedent left behind a high value and/or complex estate. Generally, the decedent’s “gross estate” includes all the following:

• All property in which the decedent had an interest (including real property outside the U.S.)
• Certain transfers made during the decedent’s life without adequate consideration
• Annuities
• The includable part of joint estates with rights of survivorship
• The includable part of tenancies by the entirety
• Certain life insurance proceeds
• Property over which the decedent had a general power of appointment
• Dower or curtesy (or statutory estate) of the surviving spouse
• Community property in which the decedent had an interest

Contact a Grand Forks Probate Attorney

Please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to pay federal gift and estate taxes, or serving as an Executor, contact a Grand Forks probate attorney at German Law by calling 701-738-0060 to schedule an appointment.