The IRS has released Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Instructions for completing the Form have not been released.
This Form is to be used by the estates of decedents who died in 2010 and have elected not to be subject to the federal estate tax. While the estate will not be subject to the federal estate tax, the estate’s executors will only be able to allocate up to $1.3 million in basis increase to the decedent’s assets, plus an additional $3 million in basis increase for certain gifts to a surviving spouse (outright gifts and qualified terminable interest property “QTIP”) .
The IRS today extended the deadlines for filing Form 706 or Form 8939 for decedents who died in 2010.
The current low interest rate environment provides excellent opportunities to transfer wealth to family members. One approach commonly used to accomplish this goal is to sell assets to an intentionally defective irrevocable trust (“IDIT”). An IDIT is an irrevocable trust for the benefit of someone other than the creator of the trust (the “Settlor”), perhaps Settlor’s descendants. However, the “intentionally defective” component of the IDIT means that, for income tax purposes, the assets in the trust will continue to be treated as owned by Settlor. Thus, Settlor’s sale of assets to the IDIT will not result in income tax consequences. Additionally, Settlor’s payment of income taxes on the income earned by the IDIT provides an additional means of reducing Settlor’s taxable estate, while allowing the benefits of the income earned by the IDIT to benefit Settlor’s descendants.
Typically, Settlor will take back a promissory note for the assets
Many of those who perished died without having executed a Last Will and Testament. If you die without a Will, the state in which you are domiciled at the time of your death will determine under the laws of intestacy where the property you held in your own name will pass. It takes many people by surprise, but the list of intestate takers or heirs may not be the people you want to inherit and they might not take in the percentages or shares you would want.
The IRS has released drafts of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return for estates of decedents dying after Dec. 31, 2009 and before Jan. 1, 2011, and its instructions. They reflect law changes made by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act), as well as indexing and other changes. Form 706 must be filed by the executor of any estate of a decedent dying in 2010 whose gross estate, plus adjusted taxable gifts and specific exemption is more than $5,000,000. Alternatively, for decedents dying in 2010, the estate may elect not have the estate tax apply, but rather to apply modified carryover basis treatment to property acquired or passing from the decedent. If such election is made, the executor would not file a Form 706, but rather the IRS has indicated that such election will be made
The Internal Revenue Service issued guidance today on the treatment of basis for certain estates of decedents who died in 2010. The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply. Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due Nov. 15, 2011.