I am sharing an article which I read earlier this evening from the Wills, Trusts, & Estate’s Law eJournal which is an electronic journal edited by Robert H. Sitkoff, John L.Gray Professor of Law, Harvard Law School and sponsored by The American College of Trust and Estate Counsel (ACTEC) Foundation. While written to inform Texas Lawyers the article written by Nikki Laing, J.D. of Capshaw Green, PLLC, has equal applicability to South Carolina Lawyers as well. Estate and Gift tax returns, form 706, are basically creatures of federal law which applies to all of us. I have reprinted the introduction and scope sections of the article. To finish it please click on “The 3 W’s (Who, What, & When) of Estate Tax Penalties and Liability”
If you are a South Carolina lawyer who prepares estate tax returns or advises accountants in their preparation you should read this article.
Why should the typical Texas lawyer be concerned with staying abreast of federal estate tax laws? The recent increases in the exemption amount have resulted in fewer estates being required to file an estate tax return. The majority of Texans do not have a net worth that would subject them to the federal estate tax. Only attorneys who provide services to the very wealthy need bother with staying up to date on federal estate tax laws, right? Not so! Despite the estate tax exemption being higher than ever, the number of federal estate tax return filings is actually on the rise.2 This is due, in part, to the relatively new portability provisions, which have resulted in it being advantageous for many estates under the filing threshold to file Form 706 (even though not required to do so by law) so that the decedent’s unused exemption amount can be carried over to the surviving spouse. Familiarity with issues involving the federal estate tax is especially important to Texas practitioners, since Texas is included in the top five states having the highest number of federal estate tax returns filed in the United States.3 Even when a lawyer does not anticipate ever accepting an engagement to prepare an estate tax return, it may be reasonable to assume that he or she might, at some point, represent a surviving spouse, personal representative, or beneficiary of an estate that is subject to the federal estate tax. In that event, it is imperative for the lawyer to be aware of the federal estate laws that could affect his or her client. This article addresses some general concepts and recent cases regarding penalties and liability in the context of the federal estate tax and describes the “Who,” “What,” and “When” of some issues that might be encountered by surviving spouses, executors, administrators, beneficiaries, and heirs. Failing to timely file the estate tax return, timely pay the estate tax, and properly report the values of the gross estate can result in significant financial penalties. Additionally, liability for the tax (and related penalties and interest) can extend to the personal representative and beneficiaries of the estate. Whether the practitioner represents the surviving spouse of a decedent, the personal representative of the decedent’s estate, or a recipient of assets included in the decedent’s gross estate, it is important for the practitioner to be familiar with the penalties that could reduce the value of the estate and the liability that could affect all parties involved with the estate.
This article provides some general rules relating to issues involving penalty and liability in the context of the federal estate tax. However, there are a number of exceptions to these general rules that are not addressed in this article. While this article discusses certain penalties related to the estate tax return, there are other penalties that are not covered by this article. This article addresses some situations where persons can be held liable for the estate tax (and penalties and interest), but it does not cover all methods of recovery that can be used by the federal government, executors, or beneficiaries. For purposes of this article, it is assumed that the deceased person (“decedent”) was a United States citizen residing in the United States, with the same being true of the surviving spouse. It is also assumed that all property owned by the deceased person and surviving spouse is located in the United States. The scope of this article does not include the Generation Skipping Transfer tax or issues related to bankruptcy proceedings. 1 This paper is an updated and condensed version of the author’s article, Expect the Unexpected: Valuation, Penalty, and Liability Issues in the Context of the Federal Estate Tax, published in Vol. 42, No. 3 of the Texas Tax Lawyer (Spring 2015). 2 Estate Tax Returns Filed for Wealthy Decedents, 2005–2014, available at https://www.irs.gov/pub/irs