OUR TAX SYSTEM
Taxation in the US comes in many different varieties. We have taxation on income, self-employment, gifts, and so on. When speaking in terms of the estate tax, we are discussing a tax imposed on a transfer of net assets, a transfer tax.
Different government bodies impose various types of taxes. Federal tax governs all US citizens or domiciled residents and encompasses all the different states found across the nation.
Each US state also has its own set of rules and regulations that apply to specific residents of that particular state.
TO WHOM WILL ESTATE TAX APPLY?
The estate tax can apply to any estate on two levels, one would be on a federal level, and the second would be on a state level.
Florida does not currently have an estate tax, so, for those estates located in Florida, there would be no tax consequences in Florida.
CAN A FLORIDA ESTATE HAVE OTHER STATE TAX CONSEQUENCES?
Yes, an estate that has property located in another state, may or may not have tax consequences in that particular state. A lot depends on the specific state tax rules. Some states have very low thresholds for the estate tax, and others do not, while a third, like Florida, have no estate taxes at all.
WHAT GIVES RISE TO AN ESTATE FOR TAX PURPOSES?
When an individual passes away, the very next day is the birth of the very individual’s estate.
WHAT TYPE OF TAX FILINGS WOULD AN INDIVIDUAL FACE WHEN ADMINISTRATING AN ESTATE?
Income tax returns:
– Final individual (IRS Form 1040)
– First estate (IRS Form 1041)
– Federal fiduciary (IRS Form 1041)
– State fiduciary
– Business or employment
Transfer tax returns:
– Federal gift tax (IRS Form 709) (state gift tax not probable)
– Federal estate tax (IRS Form 706)
– State inheritance tax or estate tax
Administrative tax returns:
– Obtain a federal tax id for the estate (IRS Form SS4)
– Reflect the establishment of a fiduciary relationship (IRS Form 56)
– Change of address forms (IRS Form 8822 and or 8822B)
WHAT ARE SOME USEFUL TIPS?
Start by gathering and reviewing information:
– Beneficiary forms, wills, trusts, marital agreements
– Death certificate
– Documents identifying executors of the estate
– Gather documentation on liabilities and assets, deeds, and fair market valuations
– Obtain general beneficiary information such as the names of heirs and the next of kin, look for all the basic information, like names, addresses, contact and so on
– Contact or hire an attorney and an accountant
– Open an estate checking account from which to pay from
– Transfer funds from the deceased’s bank accounts to the new checking account
– Paying expenses of the estate to ensure nothing falls behind