Estates that exceed $11,700,000 (in 2021) of “net” value are subject to Federal estate tax. The tax rate is 40%. Estates can elect to be taxed on their value determined at the decedent’s death or that “alternate valuation date”. The alternate valuation date is 6 months after the decedent’s death, and must be elected for all the decedent’s assets, and is used in the event asset values decline from the date decedent died. Absent extension the tax is due 9 months after decedent’s death.
Federal estate tax can be deferred for up to 12 months (if a request for deferral is granted by IRS) for “reasonable cause”. Examples of “reasonable cause” include estates for which the executor cannot gain access to the estate assets within the 9 month period due to litigation or other difficulty (after due diligence), or the estate assets consist of items like copyright royalties, annuities, or contingent fees that are only received over time.
Federal estate tax can be deferred on a year-by-year basis for up to 10 years (if a request for deferral is granted by IRS) for “undue hardship”. For this purpose, “undue hardship” is deemed to exist if to sell assets within 9 months of death would result in a fire sale – either no market exists, or selling assets within that time period would cause a sale in a depressed market.
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