1st 706

[Kea]

It's due 10/5 and is going on extension.

Client's parent added her to several bank accounts (that included CDs) so that client could pay medical bills, etc. if parent unable. Client never funded these accounts, but did pay parent's bills before and after death. I'm not sure what type of joint accounts these were (joint tenant or tenant in common). If they are joint tenant and client did not contribute to accounts, is it still correct to report on Schedule E and only bring 1/2 the amount into the gross estate?

Parent had a pension that stopped at death, but did provide taxable "death benefit" to beneficiary (client). This has not yet been claimed due to issue I asked before regarding converting it to "Inherited Roth." Is this considered life insurance, or does it go somewhere else or not at all?

Annuity - one set of instructions I read said to value at original contract price. This annuity was in a traditional IRA, and was purchased with check transferred from previous employer. (She did get find out that amount.) Another set of instructions said to use the current cost to buy that level of annuity. RMDs have started. Perhaps value on DOD (or alt valuation), or something completely different? But if this money has never been taxed and will be taxed for client as collected, is it still included in estate tax? Sounds like double taxation.

Traditional IRA in CD - same basic question. I'm not sure how much if any to include in Schedule H (or somewhere else). For both the annuity and CD IRA, RMD was already started.

Client is very close to the $3.5M cutoff. There are still a few small assets to value and depending on answers to above, amount could be above or below cutoff. For example, house still has not sold. Realtor provided estimated value at DOD, but final selling price may be significantly lower.

Should client, who is the sole beneficiary of the estate, pay herself a fee for being the executrix? (Sounds like a game to me, but she asked me.) If so, what is a reasonable fee? No, I won't tell her whatever is enough to bring total under the cutoff. This estate has been complex is she is spending quite a bit of time on it.

Some of the figures will not be final until after 10/5. Is it better to file an extension and not need it, or to not file it and then need it. I assume the first, but then does that mean you have to file an unnecessary 706 to show you are under the amount after all?

Sorry for so many questions. I actually feel like I understand MOST of the 706. I feel comfortable enough to do the extension. I still may want someone else to review the final, or I may bail and let someone else do all of it.

Thanks so much.

[TAXBILLY]

Have you written your detailed explanation (as required by Form 4736) as to why the estate tax is not being paid with the extension? I would follow the instructions to submit the extension by private (Fed Ex, etc) or USPS and obtain a receipt since the penalty for failure to file on time and pay are severe.

taxbilly

[Kea]

She will pay whatever estimate is on the extension. So, if there is an amount, then obviously an "unnecessary" 706 becomes necessary to get refund -- if it turns out that estate is under.

I guess to be safe, it's best to overestimate the amount of the estate and pay more now. Then when filing the "real" one, get the refund.

There is an IRS walk-in office here. Would it be better for her to drop off there and get receipt? Or do the walk-in offices still accept returns?

[michaelmars]

1] FILE THE EXTENSION AND IF THE CASH IS AVAILABLE-OVERPAY-underpaying has onerous penalties.

2]the accounts may not be joint if the daughter only had signature authority but if joint i would include 100% on the 706, if intent was to make joint and over the gift tax limit then gift tax may be00 due from the transfer of 1/2 to daughter.

3] you need an appraisal, not a realters estimate, almost 100% [at least in NY] of taxable estates are either audited or otherwise reviewed. YOu need iron clad proof of the house value and even so the irs will fight your value. if you are using the same realtors value whom you hired to market the home then the value is puffed up getting your hopes up to hire him and has no probative force.

4] executor fees-many states have stated fees ie 5% of first 100,000 then 4% of next mil then 3% of balance-etc. and not all property counts-that would be the max unless a judge approves more. as for if she should take it, that is a bracket game, if the estate is in the 45% rate and the individule is in 25% then take the most you can, [a nonprofessional executor does not pay fica on the fee.

[TAXBILLY]

I would hand deliver the extension to the IRS office. That way there will not be any future problem as to whether it was filed on time, lost in mail, etc.

If there are other beneficiaries I would suggest she take an executor fee because of all the work involved.

taxbilly

[Kea]

1 -- No Problem. However funds are only available in an account that she got TOD -- so it is already in her name and not the name of the estate. Hopefully that's OK. IRS shouldn't care as long as they get the $$.

2 -- Not sure how bank treats them, but the INTENT was for bill paying and to make it easy for her to have access after death. No gift tax returns were ever filed. She never used accounts for herself. Does this mean I report in Schedules B & C even if they are titled "Joint Tenants"?

3 -- I will advise her to get actual appraisals (will also apply to some other land that will not be sold). I was using the realtor's estimates (DOD and when put on market) to get an idea if estate would be taxable, but was going to use actual selling price if it sells soon.

4 -- Her tax bracket is under 45%. I'm not sure what it will be this year with all the changes, but TX has no state tax. She was in 15% last year.

Thanks so much for your help.

[TAXBILLY]

>>TX has no state tax<<

Is this website out of date?

http://www.window.state.tx.us/taxinfo/taxforms/17-forms.html

taxbilly

[Kea]

OMG!!!!!!

Thanks Taxbilly. When I responded to michaelmars' statement about tax rates, I was referring to Texas not having an individual income tax. But, I must admit, I never knew TX had an estate tax, either. Yes, I'm familiar with the comptroller's website and the existence of franchise tax and sales tax. I'd never heard of the TX inheritance tax and didn't even think to investigate.

Thanks for helping me avert a disaster. After I get the Federal & TX extensions, I'll also look for local help, ... or just bail out. And I thought I was getting the hang of this.

Thanks again.

Edit: This page ( http://window.state.tx.us/taxinfo/inherit/index.html ) says:

"Please note that no state inheritance return is required on estates with a date of death on or after January 1, 2005."

Now, for more reading!

Edit 2: This page ( http://www.window.state.tx.us/taxinfo/taxpubs/tx96_127.html ) says:

"A Texas Inheritance Tax Return must be filed for the estate of every decedent whose date of death was on or after September 1, 1983, and up to December 31, 2004, if:"... federal estate return required & resident of TX at DOD or owned prop in TX.

So, I think I'm off the hook on that one. (I hope!) What else could I have missed?

[TAXBILLY]

<<What else could I have missed?<<

Has your client (or you or the lawyer for the client) filed Form 56?

taxbilly

[Kea]

One Form 56 for decedent and one for estate. Yep. Done and Done.