2009 CCH. All Rights Reserved.
Federal Estate Tax, Federal Gift Tax, and
Generation-Skipping Transfer Tax
SUMMARY OF CHAPTER
Chapter 22 is a survey of the uni
ed tax system of wealth transfers by individuals. The basic legal
rst is followed by a discussion of the gift tax, generation-skipping tax, valuation concepts,
and some family tax planning.
Computation and Payment of Estate Tax
¶22,001 Estate Tax Computation—Summary
The 10 steps in the estate tax formula summarize the scheme of computation of the estate tax. Of special
importance are the add-back of adjusted taxable gifts in Step 5 and the subtraction of gift taxes paid and the
application of the applicable credit amount in Steps 8 and 9.
¶22,009 Applicable Credit Amount
The Taxpayer Relief Act of 1997 renamed the “uni
ed credit” to the “applicable credit amount.” The
applicable credit amount is a
at $1,455,800 in 2009. This equates to an “applicable exclusion amount” of
$2,000,000 in 2008. The applicable credit amount is never “used up” during life, other than to see if any gift tax is
currently payable. Since adjusted taxable gifts are added to the estate tax base, the
applicable credit amount is
still available to the estate.
ed Rate Schedule
Due to the applicable credit amount, the
rst dollar actually subject to estate tax is taxed at 45 percent. The
maximum marginal tax bracket is 45 percent in 2009.
¶22,025 Payment of Tax and Returns
Estate tax returns are due nine months after death, so there is no tax season. Filing is required once the gross
estate exceeds $3,500,000 in 2009, even if no tax is due. Extensions of payment may be granted in hardship cases.
There are special tax bene
ts for farms and closely held businesses.
¶22,035 Credits Against Tax
First, the applicable credit amount and the gift tax credit are subtracted from the tentative estate tax. Only
if there is still a tax payable is there a need to look for other credits. The most important one is the state death tax
credit (for 2004 but a deduction after 2004 and before 2010), then the credit for the death taxes on prior transfers,
nally the foreign tax credit. Most states levy a “pick up” tax, i.e., they charge whatever the maximum state
tax credit is. There are two limitations on the Section 2013 credit for death taxes on prior transfers. Valuation takes
place on the date of death of the
, not the decedent.
¶22,101 Property Includible in Gross Estate
The gross estate includes the value of all property to the extent of the interest therein of the decedent at the
time of death. The gross estate may be far in excess of the probate estate since it includes jointly held property and
insurance payable to a named bene
ciary. Note that nonresident aliens as well as citizens are subject to the U.S.
estate tax on U.S. property.