The Federal Estate Tax Exemption is $12,060,000 in 2022, reduced by the amount of any lifetime taxable gifts (other than annual exclusion gifts and gifts for qualified medical and educational purposes). Any unused estate tax exemption may be passed to a surviving spouse.
The Maine Estate Tax Exemption has risen to $6,010,000 for 2022. It is indexed for inflation in future years, but unused estate tax exemption cannot be passed to a surviving spouse.
The decedent’s gross estate includes not only the property passing under the will (probate property) but also any life insurance policies and annuities the decedent owned, joint bank accounts, real estate held in co-ownership, pension and profit-sharing plans, securities held in co-ownership and savings bonds payable to another person. In certain cases, the gross estate may also include amounts held by the decedent as custodian for a child under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, as trustee, amounts put into trusts established by the decedent and amounts held in trusts of which the decedent was a beneficiary.
To establish the correct value of the gross estate, all of the decedent’s property must be identified and valued. When we represent a personal representative, we ordinarily assume responsibility for obtaining appropriate appraisals on behalf of the personal representative. We must rely extensively on the personal representative, however, in identifying the decedent’s assets and in authorizing the release to us of information about those assets (such as bank balances and lists of assets in securities accounts).
If a gross estate exceeds the estate tax exemption equivalent (even if deductions result in no estate tax being due), a Maine estate tax return and a federal estate tax return (both of which are due nine months after the decedent’s death) must be filed. Also, for any estate that contains real estate in Maine, even if the value of the gross estate is below the threshold for filing an estate tax return, a Maine Statement of Value (if the estate is not taxable) will need to be filed in order to discharge an automatic lien that Maine places on real estate owned by the decedent, even if the real estate was held in joint tenancy with another person. When we represent a personal representative, we assume responsibility for preparing the estate tax returns.
Some complex estates offer tax-saving opportunities by using disclaimers (refusals or renunciations of estate assets) and by making certain tax elections. We explore these options with the personal representative and advise him or her of the various tax consequences.
Fiduciary Income Taxes
In addition to estate taxes, an estate, like an individual, must ordinarily pay income taxes to both the state and federal governments. An estate’s income tax returns are due annually, but not always on April 15th. An estate, unlike an individual, may pick its own tax year. An estate may choose a calendar year or a different period. An estate’s tax year could end in the 11th month after the decedent’s death (or sooner). For example, if a decedent died on July 15, 2021, the decedent’s first income tax year could end on June 30, 2022. Sometimes it will be advantageous for an estate’s first tax year to consist of only a few months.
Selection of a tax year for an estate involves a number of considerations. When we represent a personal representative, we discuss this subject with the personal representative. Ordinarily, we assume responsibility for the preparation of an estate’s federal and Maine income tax returns. These returns are quite different from those prepared for individuals. Completing them correctly usually requires coordination with other information about the estate that we will have collected.
The Decedent’s Income Taxes
The last tax consideration in any estate administration is the final income tax return of the decedent. A final income tax return must be filed for the last year of the decedent’s life through the date of death. For example, if a woman died on September 10, 2021, her final Form 1040 would report all her income for the period from January 1, 2021, through September 10, 2021. If the woman were survived by her spouse, the woman’s final Form 1040 could be joint with her spouse, who would report their income for all of 2021, even though her income would be reported only for the shorter period.
If, in the case of an estate whose personal representative we represent, the decedent used an accountant or other tax-return preparer on a regular basis, it might be most efficient for the decedent’s final return to be prepared by that person. We look to the personal representative to let us know the identity of the return preparer so that we can exchange appropriate information about the return with him or her. If, however, the decedent prepared his or her own income tax returns, we can prepare the final one. If the decedent has left a surviving spouse who would like income tax assistance in future years, we can recommend competent accountants who can perform that service.