Estate Tax

Estate taxes can take a big bite out of what you would like to leave your heirs. Federal Estate taxes apply only to estates larger than $5,250,000 for the years 2013.
There are several strategies you can pursue to reduce or eliminate the tax bite. Speak to your local CPA or attorney about these strategies.
They may mention to you to consider making gifts. You can give up to $14,000 a year to as many people as you like, tax free. Together with your spouse, you can give up to $28,000 to each person. Also consider giving your life insurance policy to your wife, your child or put it in an irrevocable trust provided the assignment takes place more than 3 years before death. To keep the policy out of your estate, you cannot continue to pay the premiums.
The new owner has to pay them. Another strategy is to get married. No estate tax is levied on property given to a spouse. Of course, whatever is left (over $5,250,000) will be taxed in your spouse's estate when he or she dies.

The first step in determining the value of your estate is to add up the value of everything you own and then subtract it from the estate value, the expenses of settling the estate and making any non-taxable bequests. No federal estate taxes are assessed on estates valued at less than $5 million.
Included in your estate is your home and any rental property you may own, securities and other investments, retirement funds (401k, IRA's)you have saved and all your personal possessions.
Pending federal and state income tax refunds are also included. Many such items will automatically pass to your spouse and not be included in your estate if the property is jointly owned.
In addition, the size of your estate will be reduced by the money you owe, such as a mortgage on your home, burial expenses, the cost of settling the estate and other items.
Assets left to charity will also reduce the size of your estate.

The task of valuing your estate will be left to the executor of your will.
If you formed a living trust, the duties will be performed by the trustee. The executor or trustee might have to call in certain appraiser professionals for help.
A real estate broker or appraiser might be used to value your home.
The Internal Revenue Service requires that all estates be valued at the time of a taxpayer's death in order to determine whether any estate taxes are due.

The IRS expects estate taxes to be paid within nine months after the date of decedent's death unless one exception applies.
The exception involves a decedent who owned a business that accounted for more than 35% of the total estate. In that instance, a formula established by the IRS may allow estate taxes to be paid over several years. Speak to your local CPA about filing Form 706.

An estate is a separate entity from the deceased and from the executor who carries out the will. The estate must have a separate federal identification number. The estate will be assigned its own federal ID number after the executor completes IRS Form SS-4.

For the year 2013, 5,250,000 Million. State tax thresholds vary per state

Congress has joined the Gift Tax and the Estate Tax together.
If you give more than $14,000 to any person per year ($28,000 with your spouse), you will be subject to the Gift Tax.
If your gift to any person is in excess of $14,000 ($28,000 for married individuals) then you will have to file a Gift Tax return which is generally due April 15 of the year following the gift.
The amount of the gift in excess of $14,000 ($28,000 for married persons) will reduce your lifetime exemption for Estate Taxes by the amount of the excess.

Expenses of administering an estate can be deducted either from the gross estate in figuring the Federal Estate tax on Form 706 or from the Estate's gross income in figuring the estate's income tax on Form 1041.
These expenses cannot be claimed for both estate tax and income tax purposes.
Generally, this rule also applies to expenses incurred in the sale of property by an estate that is not considered a dealer.
Administration expenses include the fees paid to the fiduciary for administering the estate. It also includes the accountant, attorney and tax-return preparer fees. Also, expenses incurred for the production or collection of taxable income and expenses incurred for the management, conservation, or maintenance of property held for the production of taxable income.
It also can include any expenses in connection with the determination, collection, or refund of any tax.

For decedents and gifts made in the current year, a unified credit is allowed which is the equivalent of a $5,120,000 dollar exemption is subtracted from the tax calculated on the taxable estate.
For 2012 the $5 Million exemption may be increased for inflation.
New for 2011 and 2012 is a concept named portability which allows a surviving spouse's estate to use any portion of the exemption amount not used by the other spouse’s estate.