Estate tax law is marking a centennial this year. As you might expect, the rules have changed a bit over the past century.  The IRS has placed a high value on consistency, and recent regulations require it when executors report estate asset values to the IRS and to beneficiaries. These new “consistency” rules took effect under a law passed last summer. They apply to estates that must file returns after July 31, 2015.

Here’s what you need to know.

  • How to report estate asset values. There’s a new form to go with the new reporting requirements — Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent. If you’re the executor of an estate and you’re required to file an estate tax return, you’ll use Form 8971 to report the value of estate property distributed or to be distributed.

    Form 8971 is filed separately from the estate tax return and includes a schedule that you provide to each beneficiary of the estate. The form is due within 30 days after the estate return is filed or 30 days after the due date of the estate return, whichever is earlier.

  • Exemption amount. The estate tax exemption is the amount of assets you can transfer, estate tax-free, to your heirs via your estate plan or through gifts during your lifetime. The basic federal estate tax exemption is $5 million, and is adjusted annually for inflation. For 2016, the exemption is $5,450,000.
  • Portability. Portability is an election you make as an executor to apply the unused portion of one spouse’s basic exemption to the second spouse’s estate. As a permanent part of estate tax rules, portability makes it possible to transfer all or part of an unused exclusion between spouses. You do that on Form 706, the federal estate tax return. The catch: Normally, you have to file the return and the election by the nine-months-after-death due date, even if the total value of the estate is less than the exclusion.
  • Basis reporting. Estate tax rules require consistent reporting of property values between an estate and the beneficiaries. As an executor, you’ll have to file a statement with the beneficiaries and the IRS notifying both of the value of the property as reported on the estate return. Unless an exception applies, the beneficiaries, in turn, can claim no more than that value when the property is later sold or disposed of. The statement is due within 30 days after the estate return is filed or 30 days after the due date of the estate return, whichever is earlier. Penalties apply for failure to file the statement and for inconsistent reporting of the values.

Three items to note:

  • The new requirements have no effect on the general rule that property in an estate typically passes to beneficiaries at the fair market value on the date of death. That continues to be the case.
  • If the estate is not required to file an estate tax return because the value of estate assets is less than the estate exclusion ($5,430,000 for 2015, and $5,450,000 for 2016), you don’t have to file Form 8971. That’s true even if you file a return for other purposes, such as making a portability election.
  • Each beneficiary receives only a copy of the schedule listing the assets for that beneficiary. In general, a beneficiary cannot use a value higher than the value reported by the estate as the initial basis in the property.

Give us a call about your tax-related responsibilities as the executor of an estate. We can help you understand planning documents, such as wills, trusts, and beneficiary designations, as well as your exposure to federal and state taxes.