Vicki Beckey, CPA, CFF, CSEP and head of TD&T’s estate department, provides some thoughts on understanding estate and gift taxes.
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 requires consistent basis reporting between a decedent’s estate and the beneficiary who inherits property from a decedent. The IRS defines basis as follows: “Basis is generally the amount of your capital investment in property for tax purposes.” When beneficiaries inherit property, the value of that property needs to be redefined for estate tax purposes. Typically, the basis of the inherited property has been stepped up to a current fair market value (FMV), higher than the original level that existed at the time the decedent acquired the property.
The executor of an estate that is required to file an estate tax return is required to file a statement of value (Form 8971) with the IRS. The statement of value identifies the property as filed on the estate tax return; the executor also has to provide a copy of the statement to each beneficiary. The IRS assesses a 20% accuracy penalty for inconsistent reporting and for failure to file the required information.
Executors Bear a Significant Burden for Accuracy in Reporting
A taxpayer’s initial basis on property acquired from a decedent cannot exceed the property’s final value for estate tax purposes. What happens if an executor omits some property from the statement of value? If property that was omitted from the estate tax return is discovered after the statute of limitations for assessment of tax has expired and that property would have generated estate tax, the basis of that property is zero. In that case, the beneficiary could be taxed on the total fair market value of the omitted inherited property, including any appreciation in value that occurred during the decedent’s ownership. This applies regardless of whether the executor intentionally omitted the property or not. It places one more burden on an executor of an estate, who often is a family member with no experience of being an executor.
Executors Can Benefit from Professional Estate Tax Help
It is extremely important to contact an attorney and an accountant who is knowledgeable in the estate and trust areas to assist you, not only in selecting an executor, but also assisting you if you are named as an executor of an estate. TD&T has an experienced estate and trust team to assist you with your estate planning needs as well as assistance to guide you through your duty as an executor.