Payment of the Federal Estate Tax

An estate tax, commonly referred to as the death tax, is a tax paid out of the deceased person’s estate after they die. All documents, sales and the final payment are completed by the deceased person’s surviving family.  Without an extension, federal estate taxes are paid in full within nine months of the estate owner’s death.

How is the Estate Tax Calculated?

Estate tax takes into account the deceased person’s gross estate. Items included in the gross estate for estate tax purposes are any land, businesses, bank accounts, investments, any trust property that the deceased person had a life estate in, and any life insurance policies where the deceased person was the owner.

Extensions of Time to Pay

If the amount of estate tax owed is greater than the money in the estate a 3-month extension can be given for payment of the estate tax, taking the final estate tax payment due date to 12 months after the time of the decedent’s death. This 3-month window is designed to allow the executor the chance to liquefy any assets and gather the full amount of estate tax due.  The extension of time is not automatic.  You must file Form 4768, section III, a separate part of the form for requesting an extension to file Form 706.

Additional extension requests of time to pay can be granted, up to 1 year at a time, to a maximum of 10 years. For amounts that are deficiencies, the extended time to pay a deficiency is a maximum of 4 years, up, for up to 1 year at a time. Different extension periods may apply for different assessments.

If you are paying late, be prepared to establish undue hardship or reasonable cause for not paying the tax on time. If the amunt you owe is substantial, it would make sense to contact a tax professional on what constitutes reasonable cause.

Who Does Not Have to Pay Estate Taxes?

Estate tax is never due on estates below the current exemption amount. However, the estate tax return is required to be filed even if you don't actually owe any estate tax because of the exemption.