Complications with Estate Taxes

Executors of estates of individuals who died in 2010 have until November 15 to decide whether to file an estate tax return under the new law or to opt out. If an executor chooses to opt out of the current law, the estate’s assets will be valued at their original valuation—not at the date of death. In other words, the beneficiaries of the assets will have a tax credit against the asset’s appreciated value.

One problem facing executors deciding whether or not to opt out is the fact that tax form No. 8939 has yet to be released by the IRS. This form is the one form executors need to opt out of the current estate tax. The IRS released a draft of Form 8939 in March, but stated that the form was subject to change. Executors may have to option of filing for a six-month extension on the estate tax return, but it is uncertain whether the extension would cause the estate to pay taxes at the time of extension.

Another problem facing executors is deciding how to apportion the tax credits after opting out of the current law. Different assets have different tax rates when sold, making the distribution of the tax credit significant.

For more information on current estate tax complications, see Paul Sullivan, In Agreement on Estate Taxes, Even More Complications, New York Times, Sep. 9, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.