What's New - Estate and Gift Tax

Form 706 Changes

The unified credit equivalent is $1,500,000 (2004 - 2005), $2,000,000 (2006 - 2008), $3,500,000 (2009) and increases to $5,000,000 for decedents dying after December 31, 2009 and before January 1, 2013.

For Estate Tax returns after 12/31/1976, Line 4 of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, (PDF) lists the cumulative amount of adjusted taxable gifts within the meaning of IRC section 2503. The computation of gift tax payable (Line 7 of Form 706) uses the IRC section 2001(c) rate schedule in effect as of the date of the decedent's death, rather than the actual amount of gift taxes paid with respect to the gifts.

With the top bracket tax rates decreasing from 55 percent (in 2001) down to 35 percent (in 2010) and a periodic drop in rates in-between, the IRS has encountered situations where gift taxes paid were greater than the tax calculated using the rate in effect at the date of death.

It appears that some Form 706 software used by practitioners require a manual input of the gift tax payable line. Some preparers are reporting gift taxes actually paid rather than calculating the gift tax payable under date of death rates. These errors result in underpayment of estate tax due. Cases with this issue will involve estates where large gifts were made during life and at a time when tax rates were higher than at date of death. (Posted 6-5-06)

Exclusions

The annual exclusion for gifts is $11,000 (2004 - 2005), $12,000 (2006 - 2008), $13,000 ( 2009 - present).
The applicable exclusion amount is increased to $5,000,000 for estates of decedents dying on or after December 31, 2009.
The applicable exclusion amount for gifts made after December 31, 2009 is $1,000,000. For gifts made after December 31, 2010, the applicable exclusion amount is increased to $5,000,000.

Federal Transfer Certificates (International)

For more information about securing a transfer certificate, please see:

Form 706 Filing Instructions

The instructions (which include rate schedules) may be found on the Forms and Publications - Estate and Gift Tax.

There are few significant changes to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The one change that will impact all filers is the elimination of the allowable State Death Tax Credit; for decedents dying in 2005 and later years, it is a deduction.

Note that the due date for filing a Form 706 for estates of decedents dying in 2010 is September 19, 2011. A draft of Form 706 (PDF) for decedent's dying in 2010 is available.

If you are filing a request for an extension of time to file an estate or gift tax return, remember that the request must go to the Cincinnati Service Center, even if you file your income or other tax returns elsewhere.

Important information for Form 709

Time for filing clarification: Page 4 of the instructions for Form 709 states (Under When to File) that "...you must file the 2009 Form 709 on or after January 1...). It may not be clear, but this means that returns should not be filed until January 1 of the year following the year in which the gift is made. In other words, any gifts made in 2010 will not be due (and cannot be processed) until after December 31, 2010.

Individuals who make certain qualifying gifts are required to file Form 709, United States Gift Tax Return.

References/Related Topics

Page Last Reviewed or Updated: 2012-08-14