The WAY to WOW Shows
Filing an Estate Tax Return
April 28, 2025
Automatically generated from YouTube captions; names and wording may contain errors.

[0:00] uh seven minutes before showtime. I'm thinking to myself, well, I guess I'm going to be late. And there there you go. So, um uh you know, some this is this is this is the uh this is the the probate administration game here. So, uh I'm I'm glad to be able to join you on time. Uh and and uh um just want to let you know that um uh the show is sponsored by Probate and Trusts TV. Uh this is a a new venture that brings together all the best video content on

[0:37] YouTube on the subjects of estate uh planning and uh trust and and and estate administration. I'll talk a little bit more about that later in the show. So today I'm going to be talking about my topic is executive duties and in particular it is filing the an estate tax return what's better known or what's also known as uh a form 706 or just 706. So like the regular income tax return known as the 1040 that's it goes by that

[1:14] designation an estate tax return goes by the its form number 706. Now as as those of you who've watched the show before know I am not an accountant or a lawyer. I'm not going to be talking about this from a from an accounting or legal standpoint. I'm going to be talking about it from an administration standpoint. And the reason that's important is there are lots of uh uh laws, tax laws that that potentially need to be complied with. There may be some legal issues. All of those are important, but as an

[1:52] administrator, a personal representative, whether you're an executive or a courtappointed administrator, you have the responsibility for seeing to that a 706 is filed if it's required. Okay? So, it's not the accountant's duty to see that it gets filed. It's not the lawyer's duty. It is the personal representative's duty. Okay? and to um to not file that um that particular uh um uh tax return um would be in

[2:30] essence a breach of fiduciary duty or to file it late and incur a penalty for late filing would also be um you know would also be a problem for the administrator. Okay. So, that's the perspective um that you know that I'm going to be taking uh to this morning or or well it's not it's not morning on the east coast but that that I'm going to be taking today as we talk about this. Okay. So, first of all, just to real quickly, um there um the federal government and still maybe three or four of the 50

[3:06] states uh collect an estate tax in certain circumstances. Now, I'm not going to be talking about uh estate state estate tax filings, okay? Um because the vast majority of states do not have an estate tax. uh but the federal government does and in the uh jobs uh act of uh 2019 I believe it was or 2018 this was the the tax legislation that's up for renewal this year the exemption from federal

[3:42] estate tax was increased quite a bit and for 2024 that federal exemption is 13.61 61 million. So if if if the deedent's estate is less than that, then it's it's possible um and and maybe even likely that no estate tax return, no 706 has to be filed. Okay. Uh however, even if the estate falls

[4:20] below the exemption level, there still may be a reason why it needs to be filed. And so the first step as a as a personal representative to take is to uh determine whether in fact a 706 needs to be filed. And it would be best to do that in consultation with a an accountant, right? Who not just any accountant, but an accountant who really knows estate taxation. Okay? So estate

[4:58] taxes are a specialty in the accounting world. Okay? And so many accountants do not have that as part of their experience and knowledge. And so you need to find someone um for example like my my colleague Roy Gia who's been on the show who has you who really knows how how the estate tax system works, what the laws are, etc. Okay. Uh and and I'll I'll put a link to Royy's the Royy's show in the show notes uh for those of you who who would who would

[5:34] like to learn more about the accounting side of it. Okay. Now in some cases, so for example um if if a if a uh a spouse uh whose whose spouse has passed away uh how the surviving spouse, that's the term I'm looking for. A surviving spouse may need to file a 706 in order to elect what's called portability of the deceased spouse's unused exemption. Okay. So, for example,

[6:10] let's say that a spouse dies and his estate amounts to $10 million. Okay. So, that uses only 10 of the $13.61 million exemption for last year. Now, it's going to be higher for this year. Um, we I'll use $14 million just as a round figure for this year. I'm not saying that figure is 100% accurate. I'm going to use this for example. Okay. So, this a spouse dies this year, 2025, has a $10 million estate. So, that leaves $4 million of the deceased spouse's

[6:49] exemption still available to the surviving spouse, but that that it that leftover exemption needs to be ported over to the surviving spouse. And so, uh, it may be that a 706 will need to be filed. Okay, that's one of the ways. Now, again, this is this is an accounting issue. And so, this is why you want to confer with an accountant to to see number one, is there part of the unused exemption that's portable?

[7:26] portable in the sense of move being able to be moved over and if so how do what needs to be done to accomplish that? Okay, again as a personal representative you have fiduciary responsibility for this. So to ignore this issue could could be a big problem. All right, especially when you think about it if there's $4 million in exemption that can be ported over that is saving. Hold your hats. $1.6 million in taxes because the estate

[8:01] tax rate is 40%. Okay. So to neglect the potential portability of unused of an unused exemption, okay, would be to essentially create a situation where the surviving spouse when he or she dies, uh, her estate or his estate pays a lot more taxes. Okay? And the the heirs would not be happy about that. Okay? All right. So that's that's number one. determine if if if a 40 if a 706 is required. Number

[8:38] two, excuse me, um collect estate tax information. Okay, so this is really just one of the fulfilling one of the fundamental responsibilities of a personal representative. So you need to identify all the assets, you need to identify all the debts. Okay, that gives you the the gross value of the estate. However, there are additional factors that need to be determined for the accountant to prepare the 706 and that

[9:13] includes the expenses that the estate has borne uh for various reasons. So, the estate may have paid or reimbursed funeral costs. There were probably account legal and accounting fees. There were fees to the personal representative, what may be called executive fees or or administration fees. There are court costs for if a probate had to be filed. Okay? Now, by the way, even even if the assets are in a trust, so they're not going through

[9:48] probate, assets being in a trust does not exempt them from estate taxation. Okay? Nor, by the way, does uh let's say there's a bank account and it has a beneficiary on death designation. That does not remove that asset from the gross value of the estate. The beneficiary is going to get the the funds in that account tax-free. But the reason they're going to get it tax-free is because the estate has paid taxes on it or it's within the estate

[10:25] tax exemption and so it it's not it wasn't taxable at the estates's level. Okay. So there may be some fees associated with with you know these these things administrating the trust administrating a a um bene beneficiary on death process. Okay. Uh so all of the there could be by the way appraisal fees okay uh probate referee fees all of these okay may be deductible okay on the 706 and so that information needs to be

[11:03] collected by the personal representative and given to the accountant so that the accountant can make a uh you know make a an assessment of what needs to be deducted. from the gross value of the estate. Finally, uh transfers and/or gifts that were made uh prior to death, okay? Um or transfers to certain trusts, those kind of things. All of the all of that information needs to be gathered and given to the accountant so an accurate 706 can be

[11:40] compiled. Okay? So all the so you as the personal representative or as the fiduciary like me I'm a professional fiduciary right it's my responsibility to gather all that data okay next every asset in the estate must be valued okay typically as of the date of death of the deedent okay now here's the thing uh if the if the gross value of the estate exceeds the exemption limit.

[12:16] Okay, it's very likely the estate is going to go through a level one audit, which means the IRS is going to look through the return very carefully. Okay, so earlier this month, uh through through the estates accountant, I submitted an estate tax return on a large estate. It's about a $50 million estate. Okay. The return was a stack of papers about this tall. So about 12 to 14 inches tall. Now one of the reasons was because we included

[12:51] copies of all the appraisals on all the property in the estate, including appraisals of stock and bond portfolios as of the date of death. Okay? And um appraisals of all the real estate, an appraisal of a business owned by the estate. Now all of these appraisals need to needed to be done by qualified appraisers. Okay? Now the stocks and bonds are actually done through an online program and my accountant who Roy

[13:26] who I mentioned a minute ago. Okay. He uses the same program that the IRS uses which is a good idea, right? Because the IRS sees it and says, "Okay, this must be legitimate, right? We can check that one off, right? Because it was it was done by the same system we use. Okay. But for real estate appraisals, okay, uh here in California, as I've talked about on other shows, we have some something called a probate referee who is in theory able to appraise accurately any kind of asset. In practice, that is not the case. And the problem, one of

[14:02] the problems then is that you can get an ev a valuation done by a probate referee, but it's unlikely the IRS is going to recognize that as a valid valuation of of an asset. And so uh you know be because of a law from 1989 called FIA uh the financial institutions re reform recovery and enforcement act. Real estate appraisers are now licensed in all 50 states. And the IRS broadly recognizes licensed

[14:39] appraisers as being qualified to do appraisals that are being submitted for among other things for on an estate tax return. Okay. Now, you could also there are professional associations that grant what are called certifications. There's something called member of of the appraisal institute MAI. The uh society of real estate appraisers also has a designation but these days um it's unlikely that an MAI or another professionally designated appraiser.

[15:14] It's unlikely they don't also have a license. And so it's really the state license that's going to be most relevant. So if you are having if there's commercial real estate meaning um you know retail, office, industrial, special use or even uh large apartment buildings. Okay. Well, I'm sorry. Let me take out large apartment buildings. Okay. So any of the other ones I mentioned, those are going to have to be appraised by a certified general real estate appraiser. Now, I used to do that kind of work in my previous business. uh

[15:51] and and uh it it it's it's you know it's some of the most fun work you can do as an appraiser. Now uh for homes. Okay. So um there's a a um a lower level license that residential appraisers can can get um and it's uh I forget what it's called. And then there's kind of a mid-level one for appraisers who appraise uh five plus unit apartment buildings. Okay. Uh now some appraisers only do commercial properties, some only

[16:26] do residential, some do all types of property. Okay. But the main thing is they need to be properly licensed. So, a res a licensed residential real estate appraiser, if if that appraiser appraises an office building, that's not going very unlikely to pass muster, okay? Because they're not properly licensed, okay? Uh and and so as opposed to a certified general who's certified to appraise any type of property. Okay? So, if they appraise appraise a house, they're they're qualified to appraise that. if they

[17:01] appraise a 4-unit uh apartment building, they're qualified to appraise that. So, you need they need to be qualified. Okay? And I would recommend as well that they have experience appraising properties going through probate because in in most cases they're going to be doing a retrospective valuation meaning the you know the the deedent died let's say you know January 31st here it is it's April 28th today right

[17:36] that's three months later basic basically. Okay. A typical appraisal is done, the value is done as of the date uh that the property is is inspected, walked through. Okay. A an a typical appraisal for a 706 is going to be done retrospectively, meaning I'm seeing the property today or tomorrow, whatever, right? But the value is at some point back in time. And that's again that's a that's a special uh skill and not all appraisers uh have done that type of

[18:11] appraisal work. Okay. So that's number two. Now uh there may be other types of appraisals that have to be done not just real estate appraisals. Now with with real estate appraisals there is a licensing uh regimen. For other types of property there is not. Uh, and so it's really going to come down to the experience and credentials that the appraiser has. The best credential is going to be that they've done a lot of appraisals that have been submitted to the IRS and and find out how often has

[18:48] the IRS challenged their work and how has that ended up. Okay. So if if there's a what's called a closely held business, so that's a business that its ownership is held privately. So as opposed to a company like uh Apple who Apple's stock is traded on a stock exchange, we know at any given time what the total value of of Apple is because we take the number of outstanding shares times the share price and that gives us what's called the market capitalization for that company. that's what the

[19:23] company is worth for a business whose shares are not traded on a public exchange. We can't do that. And so they have to be uh appraised u you know they have to be they have to have an appraisal done in and not unlike how real estate is appraised. Okay. Now the challenge is that even for a small business it's a lot of work to appraise a business and so they can be pretty expensive. Okay, but the reality is if you use just kind of a you know rule of

[19:58] thumb for valuating for valuing a business and then the IRS scrutinizes that. Okay, if the estate is subject to estate taxation, they could very likely challenge that appraisal. And so, uh, you know, you're you're being somewhat pennywise and pound foolish by not hiring a qualified appraiser and and and paying the fee. Okay. So, um, now I I will say that rules like uh being having the knowledge to do a retrospective appraisal that appro

[20:33] applies to all qualified appraisal appraisers. Okay. So what are called the uniform standards of professional appraisal practice apply to anyone who represents himself as an appraiser. If if you um hire someone as an appraiser and they do not include in the report a use compliance statement that that appraiser uh you know they they're not really they're not appraising in accordance with proper appraisal standards. Okay. Excuse me. Now, we talked about

[21:10] real estate. We talked about closely held businesses. And then there can be all kinds of other stuff. Art, collectibles, I've talked about horses several times, okay? Cars. So, anything that is of value may need to be appra anything that that is of value needs to be appraised. Now, you know, clothing, furniture, you know, just regular furniture, those kinds of things do not need to be valued. Uh the IRS recognizes unless it's, you know, some kind of antique or some type of very,

[21:45] you know, valuable piece of clothing. Maybe you have, you know, Dorothy's um ruby slippers that you bought from, you know, the movie The Wizard of Oz. Okay, that's that's more of a collectible. Um, you don't need to appraise that kind of everyday stuff, but anything art, collectibles, like I said, valuable animals, uh, cars, all those things need to be valued. By the way, crypto assets as well, uh, all all digital assets, those need to be valued as well. Okay. Now there is an option for getting appraisals done of uh assets of an

[22:21] estate whereby you can use an alternative valuation date that's 6 months after death if it reduces the amount of tax the estate tax the estate would pay. Here's the rub. You can't interchange. You can't, you know, appraise them as of date of death and of 6 months after date of death and then choose the lower of of, you know, the lower value for each individual property. They either all have to be date of death or all six months after date of death. Okay? So, it's somewhat

[22:57] of a judgment call as to whether you, you know, go to the expense of of of uh getting two two different appraisals on the two different valuation dates. That's something to discuss with your accountant. Uh and and if if there's real estate involved, for example, um there's probably a real estate broker involved. Um especially if some of the property has to be sold, it's something to discuss with your real estate broker to get their opinion as to, you know, what what is the likelihood that the property values you went down. Okay.

[23:32] Now, uh I'm going to take I'm going to take a break here for just a minute uh and and do you know two two quick uh two quick things. So, first of all, this is Trust and Estates Weekly. We're here every Monday at 10 a.m. Pacific time. And for for those of you who are practitioners in this field, I invite you to join my LinkedIn group called, interestingly enough, trust in estates experts, right? Showing the show and the group have the same name. So this is a this is a LinkedIn group where professionals get together. We can ask

[24:08] each other questions, extend professional courtesy, exchange leads, uh all by way of uh helping each other do a better job serving our clients. So if you if you're interested in joining, just go to LinkedIn, search under search in groups trust and estates experts, click uh a request to join and I'll be happy to admit you to the group. Also, if you prepare content related to estate planning and trust and ad and trust and estate administration. So, it's an a good place to post your content and it'll get you additional exposure, allow

[24:45] you to share your expertise. Um, and that's all for the betterment of the members of the group. So, once again, that's that's on LinkedIn. It's it's a group called Trust and Estates Experts, and I invite you to join. Now today's show is brought to you by for those of you who are from the 60s and 70s you know this commercial pitch right probate and trusts TV. So this is a new venture uh that I started to aggregate video content on YouTube on estate planning and trust and estate

[25:22] administration. So um you can strengthen your expertise with probate and trust TV. Learn practical strategies in estate planning, probate administration, tax strategies, uh tax compliance, I mean fiduciary duties, real estate and more from top practitioners including real estate broker and host of probate weekly Bill Gross and estate planning attorney Paul Rilelet's and of course yours truly. So you'll get actionable actionable insights you can apply immediately to

[25:59] better serve your clients and grow your practice. So subscribe today at youtube.comward slat, you know the at signprustv and stay ahead of the competition in this complex and changing field. So, uh, I I, you know, a as as the u uh as the compiler of Probate and Trust TV, I I hope you'll check it out and uh subscribe and that way uh you

[26:35] will never miss great content, not just from the the um producers I mentioned, but from many others as well. Okay. So, back to our our topic then, which is preparing an estate tax return. So next after you've valued the property, the assets in the estate, um you need the now the the kind of the um the accountant is really going to take over and he's going to calculate um uh deductions and credits that could uh

[27:10] potentially uh reduce or or that will yeah that will reduce the estate's taxable value. So, um, I mentioned some of these before, but there's marital deduction. There could have been a porting over of a of unused exemption from a previously deceased spouse. Uh, there could be charitable deductions if the estate made some charitable contributions, debts and expenses I talked about. And if a state uh collects an estate tax, that may be deductible on the federal uh tax estate tax return on

[27:45] the 706. Okay. So, all that all that information needs to be gathered by you, the the uh personal representative. Okay. Credits might include gift taxes previously paid. Um, pardon me, foreign estate taxes and credit for taxes on prior transfers. So, it so you may you you know, you're not fiduciaries were not experts in all the details of taxation. uh but we need to be the gatherers of information. So we

[28:20] may need to track down previously filed income tax returns that deal with some of these uh issues like gift tax previously paid etc. So the accountant can then do the proper job in calculating uh what the tax liability is. Okay. So once deduct once you once your accountant has calculated deductions and credits you've done you know the research needed to do that. Okay. Now the accountant is going to prepare and file the form 706. Okay. Now there's going to be lots of questions

[28:55] the accountant has and as the as the personal representative it'll be your obligation to confer with the accountant. Answer those questions. If you don't know the answers find them out. do the research, etc., etc., etc. Okay? Not unlike filing an income tax return, of which we're all at least somewhat familiar, right? Um, there are numerous questions that have to be answered in order to file an accurate uh return. Okay? So, couple things about filing the

[29:30] return. First of all, it's due nine months after the date of death. Okay? So again, going back to the example I mentioned a little while ago, if the person died on uh January 31st, then the return is going to be due February, March, April, May, June, July, August, September, October. It's going to be due October 31st. Okay. Now there is an automatic extension uh available um if uh form 4768 is filed. So you can get an

[30:07] extra six months to file very similar to um the automatic extension one can get uh for uh filing um an income tax return with one difference. Okay? and that is um you may not have to pay the estate taxes in order to avoid penalties for paying them late on if you apply for the extension. So this is the details of this is something to discuss with your

[30:42] accountant. But there may be there may be insufficient liquidity in the estate to be able to pay the estate taxes nine months into administration. Okay. And so the IRS uh or I should say the Internal Revenue Code provides a mechanism to delay paying the taxes without penalty. Now that doesn't mean you avoid interest. You'll pay interest on the taxes owed, but you won't pay penalties. That is different um than income taxes. Okay.

[31:18] Now, here's another difference between filing a 706 and a 1040. And that is these days, I think most people file their 1040 electronically. A 706 cannot be filed electronically. It has to be filed in a paper filing. Okay, I mentioned that one that I that I filed earlier this month that was uh you know 12 14 inches tall. It it was put into a cardboard box that was sent to the IRS. Uh the postage was

[31:54] I think close to $200 for mailing, you know, that stack of papers. Okay. And so that's that's another difference between uh an income tax return and an estate tax return. And then like all returns, the return needs to be signed. And in this case, the executive or personal representative, the administrator, that is the person who will sign the return. It's going to be a wet signature, right? With with with with a pen, right? Okay. This this this happens to be a real wet signature because it's a uh uh a

[32:30] fountain pen. Uh but uh but it it you know you I I went and met with my accountant and I signed the various forms. Okay. So so you know whereas with an electronic filing you're not signing it with a wet signature. You're signing it electronically. Uh or not even. You're signing it through the IRS's system of inputting data from the previous tax year or whatever. Okay. So again, just to reiterate this, the the due date is 9 months after date of death. You can get a six-month extension. Okay? It has to be filed

[33:06] paper. The the actual hard copy return has to be filed. Okay? Now, in general, if if estate tax is due, okay, the payment should accompany the return. Okay. And just like with uh an income tax uh return, okay, pay the taxes when you file the return. Okay. Now, there are options as I mentioned a few minutes ago uh for deferring payment or for getting an for setting up an installment plan. Um and um that that

[33:42] that can vary depending on the type of assets that are in the estate, etc. Um, I would refer you to Internal Revenue Code section 6166. Um, if you just want to get a little bit of knowledge or even better, talk to an accountant familiar with estate taxes and find out uh, you know, what can be done along those lines uh, to to, you know, arrange for payment especially if the estate doesn't have currently have the liquidity. In other words, the cash to make the payment,

[34:18] right? So, that can be a problem. Now, uh you know, you may be able to borrow the money against the assets in the estate, although that can be difficult. There aren't a lot of lenders who will lend money to an estate. Okay? They are out there. Okay? It's not cheap money from what I've seen. Um, and so these are all the kinds of things that you'll want to look into if there's an estate tax that actually has to be paid. Okay? And your accountant will be a big help with with that. They'll they know the rules. They may also have sources uh for

[34:56] getting cash to pay the taxes. They may know about a, you know, a good source for that. And so that's uh something to to look into to to talk to them about and then look into. Okay. So but eventually the taxes have to be paid. It's not just a matter of filing the return. Now the return if the return is being filed to port over uh excess exemption. So then there's no tax to be paid. So you don't have to worry about that. Okay? So there may be circumstances when all you need to do is file the return. you don't have to worry about paying any taxes because none are

[35:32] due. Okay, this is one of the big open issues with respect to the tax bill pending before Congress right now is what's going to happen with the estate tax, right? Because if the exemption limit is not extended, it's projected I've heard projections it's going to drop to as low as $5 million up to maybe $7 million. So roughly a third to a half of what it is now. Meaning a lot more estates could end up being liable for estate taxes. Okay. So the current tax

[36:09] law ends this year. Okay. So the extension or not will apply starting in 2026. And that's why you know those of us in this in this field are keeping track of things to see you know what's going to happen so that as we work with our clients advise them etc especially for estate planning attorneys okay or people like me I have a a multif family office practice as well so I need to be able to talk to my clients about what they need to do in terms of uh protecting not protecting themselves but making sure an estate has the money to

[36:45] pay estate taxes if necessary. Okay. So, so you got to pay if if there are taxes due, you got to pay them. All right. And then, excuse me. Finally, the IRS is going to receive the the uh return and it's going to go through a review. Okay? So, there are different levels that it goes through. Level one, level two, and so on. So, uh, if there's no tax due, um, the the IRS will review it, but, um, probably that, you know, that's it. You're done. Okay.

[37:20] if there's tax due. Okay. And if the matter is in probate as opposed to in a trust or trusts. Okay. So then not only will the IRS have to review it, but they will have to issue what's called a closing letter. Meaning the taxes uh the the IRS has accepted the return and the taxes have been paid and therefore this matter is closed. Okay? because the court may very well ask for

[37:55] the closing letter to be the IRS closing letter to be submitted before it will allow the probate to be closed because you're talking about a major potential debt to the estate. And it is the probate court's responsibility to make sure that all assets are marshaled and all debts are paid before the the probate is closed. Okay. So, as I said, uh I think toward the beginning, if if the estate is liable for estate

[38:30] taxes, almost for sure, according to Roy, you're going to go through a level one audit. And I I think you can see why. because they want to make sure that the proper tax is is being paid. Okay. Now if and this is one of the reasons why it's so important to use qualified appraisers, qualified valuators in valuating in in valuing and appraising the assets of the estate because the the deeper the IRS feels it needs to dig, the more likely it is that they're going

[39:08] to find some reason to assess additional taxes on the estate. Okay? So, you want to make it I know this may sound, you know, strange to you to those of you who are uh tax averse like me, but you want to make it as easy as possible for the IRS to go, this is legitimate. This is legitimate. Okay, sign off. Right? And one of the ways to do that is by using qualified appraisers, business valuators, etc. Okay? So

[39:43] um that process can take anywhere from probably on the minimum maybe about six months. It could take years, okay? Could take a year, two years, even three years just to complete a level one um audit. It depends. the the estate tax uh division of the IRS is not very big because there aren't a lot of estates that are subject to taxation, but the work is fairly complex and so it has to be done with a great deal of care. Okay? And so it can take time for it to work through. Now, if the IRS

[40:20] challenges a return, so it could wind on for a long long time. If you're talking about multiund million dollar or even billion dollar estates, okay, then you know the amount of taxes that the let's let's talk about a1 $1 billion estate. Theoretically that could be liable for $400 million in estate taxes. Do you see the IRS has a real strong incentive to look very closely at that

[40:55] estate to make sure they're maximizing collections? Okay. So, it could take years and years and years for for that return uh to get accepted and for the I for you know to pay the taxes and for the IRS to issue a clearance letter. So that's why all of this uh all the preparation is so important and why it's so critical to make sure that you're using an accountant or you're not using working with an accountant who is very familiar with dealing with estate tax returns and estate taxes. Okay. Now um the the the

[41:33] IRS could choose to audit the return. They might decide to do their own valuations to contest the ones that you submitted, etc. And if you've ever been through an audit, it can be a pretty grinding process. Now, I will say that it is not always the case that just because the IRS challenges something that a they know what they're talking about or b that they win. So many years ago when I had my previous bis real estate company, uh the IRS challenged the valuation of a

[42:08] a piece of real estate here in California because the appraised value uh which interestingly enough I hadn't done another appraiser had done it um even though it was it was one of my clients uh the appraised value was lower than the value assessed for property taxes. Now, in many states, that wouldn't necessarily be a bad position for the IRS to take, but here in California, we have something called Prop 13. And except for the year in

[42:44] which the property changes hands and is reassessed, assessed value and market value don't have any relation. Okay? Because assessed value can only increase a maximum of 2% per year. And because of that, the assessor does increase assessed values 2% per year no matter what's happening in the marketplace. So this particular property uh it had changed hands whenever it was several no a number of years before. Um

[43:22] and so you know the the value let's just say the value was assessed at a million dollars and over the ensuing 20 years that $1 million increased 2% compounded for 20 years I think went up to you know what whatever it was um yeah $1.6 million okay but the market because the market had declined for this particular type of property at date of death it was only worth something like 1.2 2 million. I'm just, this isn't the actual numbers. I'm just using example. So, the IRS was contending because the

[43:57] assessed value is 1.6 million, that was the proper value for the property, not the 1.2 million that the appraiser brought in. So, my client approached me because he knew I dealt with these kind of complex issues. And I wrote a letter to the IRS showing them why the assessed value was higher than the market value. And uh you know the IRS looked at that and they realized the mistake that they made and they they passed you know they they signed off on the $1.2 million

[44:32] value. Okay. So just because you get audited doesn't necessarily mean that you know the IRS is going to be correct in whatever it's claiming. It needs to be examined and and and that doesn't mean that you know the auditor was was stupid or anything like that. The auditor on this particular estate was in Colorado and the tax assess property tax assessment system in Colorado is different than California. Um, and and by the way, this is this was also uh much closer in time to prop 13

[45:09] passing. So it wasn't as well understood then as presumably it is today where it's you know the law is I think close to 50 years old now. So these are the kind of things where having competent professionals working with you as the personal representative are very very important so they can understand these more complex issues. Okay. But at some point, you know, the hopefully the IRS will accept the the the return, the taxes will be fa paid, you'll get your closing letter, and now you're done with the 706. Okay. So,

[45:46] uh, I I I've gone through a lot of fairly complex, uh, information, but I just want to take a minute to review the steps real real quickly that, uh, that you're going to go through as you fulfill this this administration tax. First of all, determine if the seven a 706 is required. Number two, collect the information. Three, get valuations of the various assets of the estate. Four, provide the information to your accountant so that he can calculate deductions and credits. Five, work with

[46:21] the accountant to prepare and file the 706. Number six, pay any tax due. And number seven, work through the IRS review and deal with any concerns so that you can get your closing letter. So that is the 706, the estate tax return process from an administrative standpoint. And uh I mean taxes aren't necessarily an interesting subject for most people. Uh I mean I I find it pretty interesting

[46:56] learning the ins and outs and the details. And I I encourage you to learn as much about it as you can because then you can work more effectively with with your accountant in making sure that the best job is done for for your clients. If you're a professional like me or if look if you're an individual to make sure that you know if if you're both an executive and an heir or a trustee and a beneficiary that the best job is done uh both from a fiduciary standpoint but also for the beneficiaries andor the the

[47:31] the heirs of the estate. Okay. So that's our show for today. I thank you very much for watching Lammon. Good to see you again my friend. Uh and um tomorrow uh is at 10:00 a.m. Pacific time is my show business lessons from the military and my topic is naval tradition meets business culture. You know I'm a Navy guy and so I'm going to be talking about something called piping the side and how we can apply this to our businesses. And

[48:07] then on Wednesday at 10:00 a.m. is my show, People Making Money. And my show will be about permission to decline. How saying no builds wealth and sanity. It was one of the most difficult skills I had to develop uh earlier in my business career was the ability to say no. It seems counterproductive to building a successful business and indeed it is a crucial skill to build. So I'll be talking about that on Wednesday at 10 a.m. And then 7 days from today I'll be

[48:42] back for the next edition of Trust and Estates Weekly. My guest will be Kelly Weey and she'll be talking about estate planning and intellectual property. I am really looking forward to talking to Kelly about this intellectual property, right? Things like books, movies, you know, videos. This this show that I'm doing right now is my intellectual property, right? How do you deal with that in estate planning? So, please join join me uh a week from today when I talk to

[49:19] Kelly Way about that. Okay. So once again, I thank you very much for joining me. Thanks to my sponsor, Probate and Trust TV. And uh if you have any thoughts, comments, uh please post on our social media. All the links will be in the show notes. And I haven't asked this for a while. If you are not a subscriber to uh the Way to Wow shows, please click that or please consider clicking that uh subscribe button. I really would appreciate it and that way you'll never miss uh any of our shows. Uh so again,

[49:57] thanks so much. Wishing you a wonderful rest of the day and signing off. Marie darling, you are my bell. Courage at all times, my friends.