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Why you should file that unneeded estate tax return

November 30, 2011

It seems odd. With the estate tax exclusion at $5 million -- higher than ever -- why is the IRS bracing for a flood of estate tax returns? Roberton Williams explains at TaxVox:

Portability—that is, retaining that unused exemption—has its price, though: A surviving spouse must file an estate tax return that specifically provides for portability on time, whether or not the estate owes any tax. Otherwise, the extra exemption is lost forever. (And, curiously, the decedent or the executor may specifically deny portability on the return, thus making it unavailable to the surviving spouse.)

Pity the poor executor who doesn't file an estate return for Old Elmer, who has only the assets in his double-wide. A year later his widow, Betty, wins the Powerball jackpot and falls over dead from the excitement. Failure to file that seemingly meaningless Form 706 for Elmer will add $1,750,000 or so to Betty's estate tax -- an amount likely to come out of the bottom line for Elmer's executor, or his lawyer, or the lawyer's malpractice carrier.

Sure, Congress could easily fix this. But that would require them to get something right, which we should never count on.

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Comments

I am a college student, and am studying the Fair Tax in class. If the Fair Tax were in place, we wouldn't have any problems involving estate taxes, because there would be no estate taxes. Just something to think about!

There is another reason, in my experience. If there is a jointly owned property, in order to register the home in the name of the surviving spouse, there must be no encumberence on the home. The filing of the estate tax at the state level assures there is no tax lien against the home and the title can be clear. Failing to make that filing can complicate matters when the surviving spouse passes on and the estate attempts to sell the home.

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