Who Needs to File an Estate Tax Return?

Along with filing tax returns and paying taxes on income while alive, estate taxes may also be required to be filed and paid upon the death of a decedent. An estate tax is a tax that must be paid to the Internal Revenue Service for the decedent's right to transfer property owned by her at the time of death. Whether an estate tax return must be filed, and the amount of the tax due, depend on the value of the estate left by the decedent.

Probate Process

When a person dies, his assets must generally pass through a legal process called probate. During the probate process, the decedent's assets are inventoried, creditors paid and the remaining assets eventually passed down to the beneficiaries or heirs. An executor or personal representative will be appointed by the court to oversee the probate of the decedent's estate. Part of the probate process includes the payment of any taxes owed by the estate, such as estate taxes.

Who Must File an Estate Tax Return

Although an estate may owe taxes, most are not actually required to file a separate estate tax return. Most simple estates with cash assets, publicly traded securities and/or easily valued property that does not exceed a certain dollar threshold are not required to file a separate estate tax return. The estate value limit after which an estate tax return must be filed is subject to change; however, as of 2011, estates worth less than $5 million were not required to file a return.

Determining the Value of the Estate

To determine whether an estate tax return must be filed, the value of the estate must first be calculated. In general, the current market value of all assets is first determined to arrive at the gross value. Deductions from the gross value are then takenm such as debts, estate administration expenses, and exempt property that will pass to a spouse or charity. Additional deductions may apply. Lifetime taxable gifts are then added back into the value for a total net value of the estate for estate tax purposes.

How to File

The executor or personal representative of the estate is responsible for filing the estate tax return if required. The return is completed using IRS Form 706, United States Estate Tax Return (see Resources). Along with the return, the executor or personal representative must also submit a copy of the decedent's death certificate; a copy of the decedent's will or trust; appraisals; any documents relating to litigation involving the estate; and anything else that might be relevant to processing the return.